What Does a New Face Mean for Investors?

It's tough when a company you love or have invested in launches a dumb product, or buys something it shouldn't, or just generally mucks up. Those things hurt the brand and usually have a big impact on the bottom line. As Microsoft's (NAS: MSFT) writedown of aQuantive has recently shown, even a big company can make a big, bad purchase. But the thing that can raise even more ire than a bad purchase is a bad rebranding campaign, as Microsoft has now changed its logo.

So what can a change in brand tell investors about a company?

A Qwestionable decision
I would love to have been a fly on the meeting room wall when Netflix (NAS: NFLX) CEO Reed Hastings announced the creation of Qwikster. I bet the silence was so deep that you could have heard a pin drop outside on the street. Qwikster was announced last Sept. 18, oddly as a part of an apology blog post. The company was apologizing for its recent pricing changes which, by that point, had already shaved almost 50% of the stock's value.

Between the Qwikster announcement and its retraction in October, the stock fell another 28%. It's clear that not only were customers outraged, but investors saw the flip-flopping and fuzzy thinking for what it was: a failure at the leadership level. What this branding flop made clear was that the process of rebranding had happened without any real consultation with customers. That showed that the company was making big business decisions without thinking about how it would affect sales. Investors saw through the nonsense and punished the stock.

Failing to mind the Gap
Looking a little further back, you might remember the change that Gap (NYS: GPS) made to its logo in 2010. The company briefly had a Helvetica logo with a little blue square on its homepage, until angry Web denizens forced it to revert to the standard blue box. The stock fell that week, due mainly to a poor September sales press release, so let's see what happened after the company reverted to the original design. From the day of the apology on Oct. 11 to two weeks later on Oct. 22, nothing interesting happened at Gap. However, the stock moved from $18.27 to $19.15, a gain of 5%.

Gap did two things right that Netflix did wrong. First, Gap rolled out its change only on the website, to test the waters of public opinion. That meant that it didn't have to spend extra resources on an untested product. Netflix made a whole new website, and a bunch of noise when it rebranded, giving people no option to ignore it. Second, Gap recognized the error it made within a week. On the company's Facebook page, it posted a note claiming that it was interested in getting customer designs, and that the new Helvetica thing on its homepage was just one option.

Gap managed its failure much better than Netflix, and even though the company continued after the logo debacle, it didn't have the added pressure of angry customer and shareholders questioning its brand. Finally, let's look at a company that actually did rebranding right.

Just blowing smoke
When I hear the name Altria (NYS: MO) , I think of a company that might make a pill for ambidexterity or pole vaulting. It certainly doesn't suggest a huge tobacco company to me. That's where the win comes in. The company used to be named Philip Morris Companies, but in 2003, when hatred for tobacco was in full swing, it changed it up. You can imagine the impact that it had on investors and money managers.

If the end of the year rolls around and you have to explain why a big tobacco company is in the portfolio, you might just sell the thing off in order to save face. But if all your client sees is Altria, then there's nothing to explain. The cigarette brands are still the same, so customers don't see any change, and sales stay strong. At the time, the company also owned 84% of Kraft Foods, and distancing that brand from cigarettes made sense for the stock.

The bottom line
The logo change by Microsoft is probably a good one. I think it will help the company unify all its lines under a consistent design, while holding onto the basics of its classic branding. Unlike Netflix or Altria, Microsoft isn't making the change as part of a major move in its corporate structure or function. The move is much more akin to Gap's change, but without all the customer sentiment that goes along with changing a clothing logo.

The real point here is that brand changes can have big impacts on shareholders. Whether it's a logo, name, or operation, changing the customer face of a company says something about the management of the company, and the goals that management are trying to achieve. To keep an eye on Microsoft, sign up for the Fool's premium report. It gives a detailed rundown of the company, and gets updated throughout the year so you can stay on top of all the latest news and movements. Sign up today.

The article What Does a New Face Mean for Investors? originally appeared on Fool.com.

Fool contributorAndrew Marderdoes not own any of the stocks mentioned in this article. The Motley Fool owns shares of Netflix and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Netflix and Microsoft, as well as creating a synthetic covered call position on Microsoft. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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