Changing a company's stripes

Issue Number: 
545
Author: 
Maxim Bukin
Published: 
2003-10-03


Giving up an established brand name is risky, but more and more companies are considering taking the rebranding plunge.
Some are doing it to boost business with a more powerful, national identity. Others are looking for a fresh start after troubled times, and still others are trying to project a broader identity as they expand their areas of operation. Phone companies, banks, airlines – including Aeroflot – and many other types of businesses are actively studying their the value of their names.
Russia’s fast-growing telecommunications companies, as they spread their coverage throughout the regions, are highlighting the issues involved when it comes to tough rebranding issues. They have spent years building up their brand names in the lucrative Moscow and St. Petersburg regions. But the companies they are buying up throughout the country have also been busy establishing their own identities. Should they stamp their corporate brands on these new companies, or keep the names regional customers have become familiar with?
Mobile TeleSystems (MTS), for example, has exploded in terms of regional growth but, studies show, about one-third of regional subscribers do not know that they are using MTS’ services.
MTS has controlling stakes in Kuban GSM, Uraltel and Dontelecom. So far, at least, it is letting them keep their regional names.
Especially, Kuban GSM, with more than 900,000 subscribers, has become a too-well-recognized brand to be hurriedly dumped, industry players say.
The only MTS-acquired operator in the past 18 months to be targeted for rebranding is Bashkortostan’s BM Telecom. But BM officials say that they have received no clear deadline for giving up the old brand. Before that can be done, officials say, local subscribers still have to be convinced that the national operator, MTS, will work better for them than the one to which they have become accustomed.
VimpelCom is facing similar problems. It controls local operators such as Orensot (in Orenburg), Extel (Kaliningrad) and StavTeleSot (Stavropol). Orensot is currently undergoing rebranding. But, in this case, VimpelCom is using both the old brand and a new one, Beeline GSM, which it uses in its major markets.
VimpelCom spokesman Artyom Minayev says that the rebranding process has already begun in Orenburg. "By the end of the year, there should be a single brand," he said. "This will help give users a more positive view of the federal brand that covers the local market."
Megafon, the third national operator, recently completed rebranding in its Northwest GSM subsidiary, changing the name to Megafon. Company spokesman Andrei Klimov says that, in a successful company, the brand can be worth more than the infrastructure. Competitors can copy a company’s infrastructure, he notes, but they cannot copy its brand name. Brand management amounts to managing the company’s most precious asset, he added.
"Rebranding is justified only in cases where the company has grown beyond or changed its business niche," he said. "This was the case with Northwest GSM, which worked successfully under its regional brand until it became a national company."
"We followed a ‘soft’ rebranding strategy aimed at gradually fading the old brand out of the market and replacing it with the new one," he added. "There’s a period where they’re both on the market – the old brand feeding the new. And then its share begins to drop until it disappears completely. The process took four or five months, which is a very short time for any country except Russia. But we have our own idea of speed here."
As for the costs? "There were expenses involved in rebranding, but the brand’s worth had grown noticeably by the end of the year," he said.
When rebranding, most mobile-phone operators’ national-brand logos gradually take up more space on advertising than the old brands. Eventually, they dominate until the old names virtually disappear.
Before the Northwest GSM changeover to Megafon, the only previous significant cases were when Volga Federal District operators replaced their separate brands with a single new name, SMARTS, and when several regional companies switched over to the MTS brand after being purchased by the Moscow-based operator.
Rebranding does involve a certain loss of recognition when the old name disappears but, on the upside, regional units can reposition themselves as national operators and offer the advantages that come with that, such as countrywide roaming.

Other industry segments have also undergone rebranding. South Korea’s Lucky Goldstar, for instance, changed its name eight years ago to LG Electronics.
"Completely changing a company’s name is an unprecedented step by world standards," said Tatyana Shakhnes, senior manager at LG Electronics’ marketing department. "It was a victory for LG and gave the company a lot of competitive advantages and the chance to develop an independent marketing strategy," she explained.
Other examples are Siberian Aluminum’s decision to change its name to Basic Element, Bashkreditbank’s name change to Uralsib, and Tyumenaviatrans’ rebranding as UTair.
Alexander Martirosov, general director of UTair, says that the brand change became necessary because the company had grown and its name no longer matched its real place in the aviation sector.
"The main secret in the new name is that it doesn’t stand for anything," Martirosov said. "It’s as much beyond politics as it can be. It’s focused on the company’s marketing interests, easy to remember, and it sounds good. The company changed its policies along with its name and has introduced a lot of innovations. We now have a frequent-flier program, have begun work on having three classes onboard our aircraft and introduced new flights and routes. We also plan to develop flights on small aircraft, buy new planes and develop flights within our region."
Cosmetics manufacturer Uralskiye Samotsvety also made a change, switching its name to Kalina in 1999. Kalina spokesman Sergei Kazantsev says that the change was necessary because the company had acquired a new management team and begun expanding into other regions.
"We couldn’t call the factory we bought in Bashkortostan ‘Uralskiye Samtsvety,’ for example," Kazantsev said. "The company’s name was too focused on one region. We decided to call the company a ‘concern,’ as it has different types of factories among its assets. We chose the concern’s name through a tender process, and we had more than 1,000 bids. Our choice was a good one, as the subsequent rebranding PR campaign showed. Our brand recognition jumped up enormously, and the concern was awarded the Serebryany Luchnik prize for public relations."
There are also examples of rebranding that have gone wrong. Andrei Fedotov, executive director of research company Russian Public Relations Group, says that shoe retailer K-S’ decision to change its name and product range has not turned out well. "K-S was a chain of stores selling good European shoes, but it decided to rename itself ‘Zh’ and began to sell shoes that are also good, but are made in China," he said. "The Chinese have improved the quality of their products a lot, and professionals know this, but, in the minds of ordinary people, Chinese shoes are still not as good."
The company’s management disagrees, however. "It was no longer in our interest to keep working in the old niche," said marketing and sales director Ilya Buzdin. "There were too many people selling expensive, quality shoes, and almost all the chains were trying to get into this niche. To stay on the market, the company’s management decided to change the brand and look for a new development strategy for our chain."
Buzdin says that the new strategy was helped by the fact that some of Moscow’s popular markets that had been selling fashionable but inexpensive shoes, such as TsSKA and Dynamo, were closed. "Customers who liked the variety and prices in these places found themselves with nowhere to go, and Zh intends to fill this gap," Buzdin said. Management plans to invest $2 million in developing the business this year.
Investment bank Trust, previously known as Doveritelny Investitsionny Bank, changed its logo. The effort was carried out by well-known company Interbrand for $1 million. Bank Chairman Ilya Yurov says that changing the name was not the most important part of the new marketing strategy.
"It’s not really about rebranding, changing our name or repositioning ourselves," Yurov said. "It’s about building up a brand virtually from scratch."
Vladislav Lekachev, an analyst at financial and valuation company Avers, says that the new name and logo are strange: The new logo is the letters ‘RUS’ framed by two right angles. "Financial organizations rarely play around with their names," he said. "Usually, they’re written simply and without frills. It seems that the bank understands this, because they print the name under the logo, though a good logo does not usually require this. So far, all the effort made has not really brought any particular success."

Rebranding can involve changing not just the company’s name, but also its image, in the event of a new company strategy.
British company Identica is involved in rebranding for Aeroflot, one of the largest such projects in Russia. The company’s main values have been formulated, a new corporate color scheme has been devised that better reflects today’s Aeroflot and the transformations it has undergone, and work is under way on improving service on the ground and in the air.
The results will be announced this month of a competition to design new uniforms for flight crews and ground staff.
"For us, the point of rebranding is not just changing the design scheme of our planes or getting a new logo," said Aeroflot general director Valery Okulov. "The main thing is to really improve our product through providing better service for our passengers."
Some major Russian construction companies have also decided to change their image. Eduard Tiktinsky, general director of Severny Gorod and RBI holding, says that, until 2002, the RBI brand covered two types of product – exclusive housing and mass housing. But some customers had the impression that RBI sold only exclusive housing.
"We wanted to set straight this impression our customers and partners had, and so we decided to separate our two products and follow a more precise branding strategy by using two brands: Severny Gorod (apartments for middle-class customers) and RBI (exclusive housing complexes). We were able to create an awareness that apartments, like any other goods or services for the middle class, are something positive, fashionable and high-quality," Tiktinsky said.
Konstantin Popov, a representative of the Inkom-Nedvizhimost board of directors, said his company had changed its brand for a stronger identity. "The Moscow Central Real Estate Exchange that I headed merged with the Inkom corporation," he said. "As a result of the merger, the brand increased according to the formula that ‘one plus one is five.’ Both companies had their own capital, and both were trusted companies, and the merger gave these factors a multiplying effect. But changing brands does not always go so well. There are plenty of failed examples. Everything depends on choosing the right policy. Changing your brand means changing your style."
Changing brands is not an easy decision for a company. There are always some anxious moments for the client and for the agency involved in designing the change. The agency is worried that the client won’t understand its brilliant ideas, and the client is worried that the whole undertaking will prove too expensive.
"Clients usually don’t even really know themselves what they want to get out of it all," said brand manager Yulia Strogina. "Even if they wanted to, clients are unlikely to be able to clearly set out their ideas to the agency. When the agency tries to get the client to say what it expects, the client for some reason gets offended, following the logic of, ‘If I tell you my ideas, then I’m the one coming up with everything, and why am I paying you money then?’"
Ad designer Sergei Belogorodtsev agrees. "Unfortunately, clients still follow the principle of not giving away anything," he said. "There are examples of fruitful and constructive cooperation between clients and agencies, but they are still few. The taboo against divulging your secrets is usually still present on both sides. You have to remember that fruitful work just can’t happen unless the client and the agency cooperate, especially when the work involves aspects such as creating the whole mythology behind the brand and choosing advertising-campaign strategies."
The main thing to remember is that rebranding can be both a very destructive and a very effective marketing tool, and, as such, it should always meet two criteria – be justified and carefully planned.

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