DEFINITION of Corporate Umbrella
A corporate umbrella is a large, generally successful brand name that oversees smaller companies belonging to the same corporation. It adds structure and credibility to the smaller brands without making key organizational decisions regarding products and services. This allows the subsidiary to distinguish themselves from the corporation, but with the financial backing and support of a much larger company.
Many large companies employ a corporate umbrella strategy to diversify revenue streams and realize greater profits. For example, Proctor & Gamble (PG) sells various products under different brand names like Bounty paper towels, Crest toothpaste, and Downey detergent. Each name brand operates independent of Proctor & Gamble but also part of the larger company.
BREAKING DOWN Corporate Umbrella
A corporate umbrella is employed to raise the credibility of smaller brands launching new products and services. In doing so, the subsidiary can target a larger customer base or audience previously unaware of its products and services. Transferring brand value to the smaller company also creates synergies for the corporation. If different divisions improve their brand equity and monetary situation, the large company reaps those rewards. They no longer have to devote greater financial and marketing resources to establish a positive reputation for the umbrella brand.
Consumer staples companies often use a corporate umbrella strategy to manage and support different products used daily. Some popular umbrella brands include Unilever, Pepsi (PEP), and Coca-Cola (KO). For instance, Pepsi manages the operations of its core soft drink business but also oversees and promotes snack food produced by Frito-Lay.
Risks of a "Corporate Umbrella"
Umbrella brands offer large corporations many synergies but some risks still remain. It becomes difficult for the larger brand to manage all the moving parts of the corporation and individual brands. If a subsidiary fails to sell a product or becomes a victim of a scandal, it can be a poor reflection of the corporation. This can result in lost sales, drop in share price or a more drastic move like changing management. That doesn't just hurt the umbrella brand.
Having dissatisfied customers with one brand can impact the sales of other products sold under the corporate umbrella. Here, the negative brand equity isn't confined to just one company but many. For this reason, the corporate umbrella strategy requires a company to be attentive to the quality of all its products and people. Otherwise, customers and target audiences will begin to associate the corporate brand and its subsidiaries with poor service.