The challenge for organisations in competitive markets is to provide clarity for customers in a way which reduces the random nature of their product selection. When making choices about the products or services they want to buy, consumers look for a variety of different verbal and physical cues, such as a name, sign or symbol they recognise and the values they represent. Although marketing efforts, as well as other stimuli, influence buyer behaviour, a key element in adding value to a product or service is branding.
Branding has become a major issue in product strategy - a way for organisations to deliver a consistent package of features and benefits for buyers. Branding helps consumers identify products which may satisfy their needs more easily. By defining clearly what the product lines are, branding reduces the time consumers spend evaluating product or service alternatives and gives consumers a clearer picture of what a product offering comprises.
This case study focuses on Bass. Growing its core business both organically, as well as through acquisition, has provided a platform for branding to become a cornerstone of Bass’s business strategy.
Bass PLC is a leading leisure hospitality group operating in the hotel, leisure retail and branded drinks sectors. In 1998, it achieved turnover in excess of £4.6 billion and the company is in the UK’s FTSE 100. Bass is one of the world’s most successful groups in the hotels, leisure retailing and branded drinks businesses and includes:
- Bass Hotels & Resorts - Bass Hotels and Resorts operates or franchises more than 2,700 hotels and over 450,000 guest rooms in more than 95 countries. It owns and operates some of the world’s leading brands: Inter-Continental, Crowne Plaza, Holiday Inn and Holiday Inn Express.
- Bass Leisure Retail - Bass Leisure Retail has over 2,400 restaurants, pubs, bars and venues which are some of the most innovative and commercially successful in the UK. Its brands include All Bar One, Vintage Inns, Browns, Harvester, Toby, O’Neills, Bar Coast, It’s A Scream and Dave & Buster’s.
- Branded Drinks - There are two companies within the branded sector: Bass Brewers and Britvic Soft Drinks. Bass Brewers is one of the world’s most famous brewing companies, making beers and lagers such as Carling, Tennent’s, Caffrey’s Irish Ale and Worthington. Brewing and distribution operations are now being developed outside the UK, including the Czech Republic and The People’s Republic of China. Britvic Soft Drinks has created colourful, innovative and sometimes outrageous brands. The result is more soft drinks brands in the top ten than any other manufacturer, including three of the top five in the UK - Pepsi, Tango and Robinsons.
Bass has developed a vision which provides a statement of direction, designed to meet the overriding expectations of its stakeholders. Bass’s vision is to be the leading player in each of its inter-related businesses in its chosen geographical markets. Bass therefore aims to:
- develop leading brands, products and services that best respond to customers’ evolving needs
- innovate in all aspects of the business in order to be more competitive
- maximise efficiency and economies of scale. Depending on the business, this could be local, national or international
- benefit from the linkages and sharing of experiences between Bass’s businesses.
These aims are designed to help Bass perform better than its competitors in meeting the expectations of its various groups of stakeholders, such as shareholders, employees, managers, customers and all other communities influenced by the Bass Group.
There are certain common themes to the initiatives Bass has been pursuing. These are:
- Building brand strength - this has involved driving the quality and the size of Bass’s brands through focused investment and marketing.
- Developing brand portfolios – Bass is extending the range of brands offered through organic innovation within the business, as well as the acquisition of other businesses.
- Optimising support infrastructure - this has involved improving the effectiveness and efficiency of the systems and processes supporting the brands.
Branding is at the heart of Bass’s product strategy. It provides global recognition and preference for many of Bass’s products. Its brands help to improve growth prospects for the Group and increase opportunities for profitability. Brands are important for customers because they represent attributes, values, benefits and personality.
Customers who build a relationship with a brand understand what will happen when they use each product, creating trust in the quality of experience. Each brand will vary in the power it has in the market-place. Powerful brands provide a high level of brand awareness and loyalty. Brands which have high awareness, reflected through a series of values, will be chosen in preference over others. Such brand loyalty also provides a basis for better growth of good brands.
A key issue facing any large business is that of developing an organisation which is the right size for the markets in which it operates. Bass recognised the need to seek a global competitive advantage from large scale production and widespread market presence. It would do this by growing its core business within the organisation, as well as seeking to acquire companies with long-term growth prospects.
The two routes towards this organisational growth have therefore been:
- Organic growth - this involves the gradual build-up and development of the businesses within the Bass Group. Although organic growth takes longer and is more difficult to achieve, it is cheaper and involves less risk.
- Acquisitions - this is a dynamic form of growth which involves the integration of other businesses into the Bass umbrella. The many benefits of acquisition include instantly becoming larger which helps to increase market share and improve competitiveness.
Horizontal integration occurs when two companies producing similar goods or providing a similar service integrate. Vertical integration involves the acquisition of organisations which will help to secure supplies of raw materials or sales of finished products.
Although acquisitions mean growth targets are achieved more rapidly, it also involves more risk. It is sometimes difficult to integrate the culture of another organisation into the host Group and many customers might not appreciate their supplier being ‘bought’.
Whenever investment decisions take place, there is a need to compensate those who take risks - whether they are lenders, managers or investors. Risk analysis helps to assess the difference between what an organisation plans to achieve and, given the probabilities of success, the likely outcome.
Although it can be argued that the future outcome of any decision is unknown, the probabilities of most outcomes can be estimated, using past and current events as guidelines. For example, the simplified risk analysis model for organisation growth shows that a high-risk venture would be a proposition which involved developing new products for new groups of customers. In contrast, a low risk venture would involve providing existing products for existing customers.
project. A ten-year organic development costing £50 million must make at least £5 million per year. Similarly, if an investment such as buying a hotel chain costs Bass £300 to £400 million, Bass therefore must use its investment to generate at least an extra £30 to £40 million per year to justify this investment.
Investment involves the immediate risk of funds in the hope of securing returns later. Organic development and acquisitions, designed to build and develop brands, have enabled Bass to gain synergistic benefits. Synergy is usually explained through ‘simple’ mathematics in the form of 2 + 2 = 5. It is used to emphasise that the sum of the parts of the organisations working together is greater than the individual components working alone.
A key element in the business strategy undertaken by Bass is to build leading positions in markets such as hotels, leisure retail and branded drinks which maximise value for shareholders. These strong distinctive brands should then place Bass in a position to grow the company over time, so that each year profits rise, the value of the company rises and the share price increases. At the same time, there should be the potential to decrease costs. For example, in 1998:
- Bass’s net capital expenditure was £587 million
- adjusted earnings per share increased by 3.4%
- dividend per share went up by 9.1%; operating profit from continuing operations 8.4%
- turnover went down by 12.3%.
Such results reflect the strong position of Bass and help it to be viewed favourably by investors in financial markets looking for steady growth from their investment over time.
UK, pubs and breweries usually became part of the same business. Pubs were simply a forward vertical integration from the brewery. Pubs to hotels became a horizontal integration.
Synergies exist between all of Bass’s businesses. Breweries and pubs supply each other, whilst pubs and hotels also fit with hospitality, drinks and related businesses. Bass is at the leading edge of innovation in all of these sectors with a brand portfolio including Holiday Inn, Crowne Plaza, Inter-Continental Hotels and Resorts, All Bar One, O’Neills, Harvester, Carling, Hooper’s Hooch, Robinsons and Tango.
The businesses of Bass are too big to be run as one company. If they were, it would suffer from diseconomies of scale. Its size would simply make it unmanageable. Consequently, each of Bass’s businesses is run separately, but with a strong central control to derive synergies and cost savings.
This case study now focuses on three different examples of business development:
1 Acquisition of Inter-Continental Hotels & Resorts
Inter-Continental is one of only five global and truly upscale brands in the hotel industry. Its acquisition has provided Bass with a broader portfolio of brands. This acquisition has enabled Bass to both take advantage of the highly attractive upscale hotel sector and complement the existing portfolio of hotels. This is a growing market in which the number of brands and hotels is limited, offering strong opportunities for a new brand to gain market share. It is estimated that branded upscale hotel revenues have grown at nearly 4.4 per cent per annum in the last ten years and this growth rate is expected to accelerate.
Inter-Continental Hotels and Resorts is a strong brand, particularly in geographic regions where Bass has a reduced presence, such as Latin America. Similarly, Inter-Continental Hotels and Resorts owns few hotels in the USA where Bass is strong. The acquisition of Inter- Continental Hotels and Resorts has provided the opportunity to expand the Bass brand as the right investment opportunities arise. Over 100 target markets have been identified in which to develop the Inter-Continental brand. This could result in an investment as large as £250 million per annum over the next three years.
Bass’s acquisition has added Inter-Continental Hotels and Resorts to a chain of more than 2,600 hotels in over 90 countries and territories. It remains important, however, to develop the best practices and synergies of Inter-Continental Hotels and Resorts, such as the:
- structure of the organisation, e.g. economies of scale and the way individuals work towards common goals
- culture of the organisation
- morale of staff and the degree to which they show support and commitment to the organisation.
These issues help to ensure that synergy leads not to 2 + 2 = 3 but to 2 + 2 = 5, ensuring Inter-Continental Hotels and Resorts operates successfully within the Bass Group.
2 Organic growth of a new product - All Bar One
The idea for All Bar One was born in 1994 when a small team within Bass Leisure Retail decided to set about opening a new kind of bar which would meet the needs of the growing number of young people eager to go out and eat and drink in a relaxed environment. What was needed, they believed, was a new kind of place – one which could not be categorised as either a pub, bar, café or a restaurant but would overcome the limitations of all four.
Located in business districts of regional main cities, the All Bar One concept is to create stylish, cosmopolitan bars designed for business professionals aged 25 to 40 who are disenchanted with the traditional pub but who appreciate good food and drink served in a lively, fresh environment. The first All Bar One opened in December 1994 and was designed to appeal to a wide cross-section of customers looking for quality, value for money and service.
Since then, with sales exceeding original estimates, All Bar One has been rolled out as a brand nationally. There are currently 45 bars, with more planned where financial opportunities exist to maintain a healthy return on the investment. This will bring the total to 60 outlets by the end of 1999. The All Bar One concept is a good example of the organic growth of a new product. Money spent shows a particularly good percentage return on investment of between 25 and 30 per cent per annum. This means a payback in three to four years.
3 Organic growth of a new market - Tango in Poland
involved large transport costs. The alternative route chosen by Britvic International was to franchise the Tango brand in Poland. Through a franchise relationship, Britvic retains ownership of the brand name, while the local franchise partner is responsible for manufacturing, selling and distributing Tango in Poland. Britvic International provides support to the local franchise partner in a number of areas such as brand marketing, business planning, sales training and technical expertise.
Over 200 Polish companies were screened during the search and selection process. Criteria for selecting a franchise partner include strong local distribution, good links with the trade, quality manufacturing facilities, entrepreneurial management style and good knowledge of the local market. Hoop was chosen as Britvic International’s franchise partner in Poland. Hoop is the fifth largest soft drinks company in Poland, currently selling its own range of water, still and carbonated products. The Hoop range did not include a premium brand and Tango, therefore, complements the Hoop product range.
The aims of the Tango launch were to:
- launch Britvic Tango as a premium fruit carbonate in Poland
- develop a long-term franchise relationship with Hoop
- achieve break-even in year three and payback in year five.
Other premium brands in the fruit carbonate sector include Pepsi’s Miranda and Coca-Cola’s Fanta. However, Tango’s black packaging and striking logo mean that it is easily distinguishable from its competitors. Barriers to entry included lengthy, bureaucratic processes required to register both the product and the packaging with the Polish authorities. Poland is a huge country so the initial marketing focus was on three major cities - Warsaw, Poznan and Gdansk, followed by a roll-out to other regions across Poland.
Tango’s initial success to ensure that it becomes a major player in the Polish soft drinks market.
Bass PLC has developed as a unique and broadly based business focusing on brand development. It has created a number of opportunities which have helped it to become a strong global player in an increasingly competitive market-place.