Advertising gurus are licking their chops at the recent wave of corporate spin-offs. New companies spawned by the restructurings and the legacy businesses left behind are bound to spend big money getting the word out about their new identities.
It’s welcome news for ad and branding agencies that will do much of the work. Call it an employment program for copy writers, ad designers and media planners.
Last week, Fiat Chrysler disclosed plans to spin its iconic Ferrari luxury sports car line into its own company. Madison Square Garden said it would cleave its live entertainment business from its sports properties.
These spin-offs follow a series in the tech industry including Hewlett-Packard (HPQ), Symantec (SYMC) and eBay, which said in September that it is spinning out the online payment service PayPal. A few other recent examples from outside the tech world include Procter & Gamble’s spin-off of battery brand Duracell as well as USA Today-owner Gannett’s decision earlier this year to split up its print and broadcast divisions. (And, not to forget, Time Warner spun off Fortune‘s parent company, Time Inc., in June.)
“Definitely not business as usual,” says Josh Feldmeth, CEO of branding consultancy Interbrand North America, a division of the advertising conglomerate Omnicom. “It’s really an exciting time.”
Newly-spawned companies need to let the world know they exist. Meanwhile, companies doing the spinning must often reintroduce themselves to ensure that customers, clients, employees and shareholders are confident in their new direction. Billions of dollars are at risk.
Branding consultants like those at Interbrand are often called in by long-term clients before a decision to split or spin is even finalized to give some thought ahead of time to how restructuring will affect their image, Feldmeth says,. “Any time you have a major business event like that it affects the brand,” he says.
The first thing companies considering a split have to consider is what role their brand plays in their business so they can determine how it may be impacted by a transaction and how much revenue could be at risk. While corporate restructurings are meant to create shareholder value over a long-term period, major changes are always dangerous.
PayPal, for example, is already a well-known and profitable brand. But PayPal and eBay (EBAY) will now need to make a strong case for themselves as viable standalone companies – especially after eBay CEO John Donahoe insisted earlier this year that the two businesses were stronger together.
And, when companies pull the trigger on a major restructuring, such as a split or a spin-off, the original company inevitably needs to spell out its growth plans and explain how their business will be better off, Feldmeth adds.
H.P., which just weeks ago said it was splitting its enterprise business from its computer and printer business, has already started its rebranding efforts, taking out at least one full-page ad in The Wall Street Journal to highlight its products for corporate customers. H.P. also showed off a new desktop computer with 3D scanning and printing technology that will be sold by the soon to be split-off hardware division.
Of course, new standalone companies have a tough road ahead to forge an identity that can stack up against their legacy company, especially when the original has a brand name as big as H.P. or General Electric (GE). But, with that challenge also comes the need to step out of the parent company’s shadow.
“One of the great opportunities for companies that are spinning off is to really bring customers into the center of their organization and get out from underneath some of the legacy that sometimes slows down innovation,” Feldmeth says.
Branding gone wrong can undermine customer and shareholder confidence. Companies are walking a fine line.
“It’s a moment for something new,” Feldmeth says. “Any miscue that dislodges customer expectations or disrupts your ability to do business in the market is going to have an impact on the revenue line and the profitability.”