Interim Marketing Executive Question: Assessing Brand Value
by Patrick Smyth
Question: In addition to understanding the cost of poor execution, how can companies assess the value of their brand?
The Service-Profit Chain developed by Heskett, Sasser and Schlesinger from Harvard Business School establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The Service-Profit Chain is made up several key linkages: profit and growth are stimulated primarily by customer loyalty. Customer loyalty is a direct result of customer satisfaction. Satisfaction is greatly influenced by the value of service provided to customers. Satisfied, loyal, and productive employees create value. Employee satisfaction, in turn, results primarily from high quality support services and policies that enable employees to deliver results to customers. Let’s say that you have high quality support services and polices, and your employee satisfaction surveys suggest your employees are happy. Does that mean your customers are in fact experiencing results that match or exceed you brand promise? Do satisfactory results really help you accomplish your goals of being the leader in your industry? What if the predominant culture of your employee base demonstrates a set of values that are not consistent with the values of your brand promise? What if different parts of your employee population that come into contact with customers have quite different cultures and values? Does your sales force demonstrate the same behaviors and in the same manner and style as your customer service organization? Such inconsistent behaviors between employee groups, and between employees and the brand promise, create disjointed experiences for customers who will find that they are constantly adjusting to your company’s different styles, behaviors, standards of performance, and promises. The customer will quickly conclude they don’t know what you stand for, and they won’t know how to describe their experience with you – perhaps other than “clumsy”. This makes it very difficult to develop a sense of affinity and loyalty with your company. While the Service-Profit Chain model provides an essential foundation to assure that your employees are delivering results to customers, a focus simply on employee support services and policies will not result in employees delighting the customer and delivering on your brand promise. You need a defined employee culture, measurements, and reward and recognition system that aligns behaviors consistent with the brand promise of your business. This strong link and consistent behaviors will strengthen the bond of loyalty with your customers, lower the cost of support service, and accelerate brand efficiency and sustained profitability.
In financial terms, the value of a brand can be a significant component of the value of the company. The price paid for acquired businesses is frequently substantially higher than the appraised value determined from the tangible assets of the company.
Assessments of the actual brand value of a business to business services company should include the internal business processes and communications systems to determine how effectively the various functions and people are aligned to deliver performance consistent with the brand promise of the company. Unrealistic prices can be paid for brand value that may be more tied to market awareness and market share, than any real capability of the company to underpin its brand equity with real sustained performance. Brand value should be discounted by elements that fail to deliver effectively, or where significant inconsistencies exist between the company and its customers’ expectations for the future.
Consider the case of Philip Morris: “In 1989, Philip Morris paid $12.9 billion for Kraft, six times its net asset value. According to Philip Morris CEO Hamish Maxwell, his company needed a portfolio of brands that had strong brand loyalty [i.e., customer relationships] that could be leveraged to enable the tobacco company to diversify [i.e., financial relationships], especially in the retail food industry [i.e., trade relationships].”2 Philip Morris paid billions for a set of relationships and the expectations that those relationships would enable Philip Morris to conduct business in entirely new ways in the future.
In addition to significantly affecting the purchase price of a company, the value of the brand and brand equity directly affects stock price of the company. A Cap Gemini Ernst & Young report issued in 2000 concluded “brand power can account for 5 to 7 percent of the change in a company’s stock price.” 2 A study of 220 companies identified that corporate brand image could be quantified with the following components:
Advertising spending 30%
Size of company 23%
Low dividend 10%
Earnings volatility 7%
Stock price growth 8%
Other factors* 22%
*(including [other marketing components such as] events and publicity, industry affiliation, product categories, message quality, etc.)3 Thus 52% of the factors influencing the brand image are those associated with ensuring that your brand message and promise are effectively defined and articulated through all the transmission systems in your company.
Through this brief analysis we can easily conclude that effectively developing and executing a comprehensive company-wide brand strategy will contribute directly to the value of the company. The steps that can be taken to accomplish this are defined and uniquely adaptable to any business. The results will be measured in the improved performance of every function of the company, leading to improved sustained profitable growth and continuing growth in stock equity.
1 Tom Duncan, Driving Brand Value, pg. 4.
2 “Name Brand Calculus or Imaginary Numbers?” US Banker, Volume 113, Number 6, Page 26, June 2003.
3 Ad Value, Leslie Butterfield, ed., Butterworth Heinemann, Oxford, 2003, “How advertising impacts on share price,” James Gregory, pgs. 17-25.
Photo by Scelera
Designing a Brand Identity
by Patrick Smyth
Don’t spend too much money and time developing psychological profiles and conducting research of competitors, or allowing inside executives to invent colors that would make them feel good about the company. It’s more important to connect your identity to your customers and what you can do for them. Therefore, your design style, look and feel, photography, and all other visual design elements that represent your company’s identity should start with your customer. Does your company’s visual identity make a meaningful and relevant connection with your customers? Does the style or font and color treatment reflect the industry or style of business and products and services you offer – including perhaps how they might be used by your customers?
Let’s say you run a business that specializes in artist supplies and tools. You might agree that to make a good connection with customers, your business identity should have a logotype style that appeals to and resembles artistic styles that are familiar to that audience. A creative, colorful, and artsy image would seem most appropriate. But imagine that your artist supply store had something like the big blue striped “IBM” symbol on it. The IBM logo is so well known, and its association with the computer industry so strong, that even if you added the words “Art Supply Store” in big bold type next to this logo your customers will be very confused. Most likely, you’ll not attract too many artists to your store. The style and color of the IBM logo is well suited to the big company corporate image that it represents.
Now let’s imagine what the IBM logo might look like if we were to intentionally adapt it for the purpose of promoting an artist supply store. What if the stripes in the IBM logo were each a different bright color representing all the colors in the rainbow? And what if the “M” was stylized and also served as an artist’s cup holding a few paint brushes, each with a dab of brightly colored paint sticking up out of the cup? Would this version of the IBM logo on an artist supply store be more appropriate and appear more relevant to customers who are artists? Even if the name was “IBM”, the image and color scheme and use of creative elements that match the customers’ purpose would make this a far more appropriate and attractive store front. The use of color is a very powerful tool for communicating and establishing a direct connection with your customers.
This example also illustrates that your brand identity and the connection that it can establish with your customers can transcend business customers into the consumer realm. Further, if your brand identity is strong enough, you may even be able to extend the values of your brand from business products or services to consumer products. In the computer services industry, IBM is one example of a band that has recognition far beyond the large business customers that it primarily serves.
How about an example from the heavy equipment industry that can translate directly into a consumer product? Almost every major construction project begins with earth moving, and perhaps one of the most recognizable images on-site during that phase is some big yellow piece of machinery with the word “CAT”, for Caterpillar, painted boldly in black on it’s side. For many people, the name “Caterpillar” is almost synonymous with “bulldozer”, and the big yellow machines are their icon. Imagine if Caterpillar decided, as some of the automobile manufacturers have done, to put their brand name on a mountain bike.
Can you imagine what a Caterpillar branded mountain bike would look like, and what characteristics it might have? The frame is most likely painted bright yellow with a wide cross-bar on which is printed “CAT” in big black letters. The frame might be made of light weight alloys to keep the bike light and easy to handle, but the tubular framing might be oversized and deliberately solid and large in appearance. You also probably imagine this to be a very heavy duty, rugged, mountain-traversing, machine. You could easily trust that this bike will perform as you would expect a rugged mountain bike to perform, especially one carrying the “CAT” name. People would buy this bike feeling that they can conquer the mountains that they aim to ride over, with the confidence that their heavy duty “CAT” will get them there. The connection to your brand can be extended into new products and new markets as long as you stay true to your brand promise and reputation.
When designing an identity, care should be taken to examine all the ways in which that identity will be communicated to your customers and the market place in general. This includes sales and marketing collateral, promotional materials, advertising, business stationery, web sites, product designs and packaging, trade show displays, software user interfaces, business cards, and so on. A consistent design style should be applied and adapted to each one of these areas so that not only will the name and logo be recognizable, but the customer will become familiar with the look and feel of each of these elements and they will recognize them as part of the same company. In essence, the customer experience across all of the visible touch points and interfaces with your company should have a consistent style and familiarity that enhances the instant recognition of your business and simplifies the customer’s relationship with you.
Don’t make the mistake of designing very complex looking marketing collateral and web site designs that feature your products in great detail, including screen shots of software, detailed technical descriptions, design look and feel elements that are derived from your own internal business – labs, production, factory floor or executive offices. You would be missing the point of creating all of this communication in the first place: to effectively establish long term relationships with customers.
In the industry for your products and services, there may be many existing elements like symbols, colors, or other visual images that are very familiar to the people who buy and use the appropriate products and services. Every community has such elements that connect the people in that community together. Your mission is to find those elements, adopt them within your identity, and become an integral part of the community you to intend to serve. Your customers will not only want to include you in everything they do, they will have a hard time thinking of themselves without you when you competitors come knocking.
Photo by tankawho
Interim Executive Question: Is Branding Important for B2B?
What makes branding unique for business-to-business companies and is it as important for them as branding is for consumer product companies?
If your business provides products and services to other businesses, you can achieve the benefits of a strong brand identity in customer loyalty, buying preferences, and referrals to other customers. However, the relationship with your customer is far more complex than when compared with consumer product relationships. Business to business service companies must go above and beyond just satisfying the client’s transactional needs to create positive brand loyalty over time. Business to business brand loyalty has less to do with spending money to build awareness than being committed to a complete and systematic and relentless dedication to an idea that is expressed in every way that touches a customer by every employee, consistently across all communication channels, and sustained over a long period of time. Business to business companies often stumble when they fail to align all of their customer facing operational processes and people with the brand promise of the company.
Customers of business to business firms believe that every form of communication they receive from your business, and every interaction that they have with your company, of every type, all combine to form the sum of their customer service experience. Moreover, this experience endures over time, such that errors committed in the past will always remain part of the customer’s perception of their experience with the business, regardless of how well the business may be performing at present. Many companies mistakenly assume that as long as they have highly responsive customer service centers responding to customer calls and resolving issues quickly, then customers will be happy with their business overall. Recognizing the importance of delivering an experience that is consistent with your brand promise across every touch point with customers is the first step to truly differentiating your business. When all those communications channels are aligned and delivering a consistent experience and message to your customers, then you will have achieved a high level of brand efficiency. When any of these channels fails to deliver on the brand promise, then your brand efficiency decreases. When efficiency decreases, there are direct consequences in customer satisfaction and retention, willingness to buy, direct costs required to repair or rework, and in overall financial performance as vital energy in the form of human and financial capital are redirected to address the deficiencies. When brand efficiency is high, then all systems and people in the company can focus most of their energy to serving the customer better, innovating new solutions, beating the competition, and moving the bottom line up.
Photo by Nick Gray
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