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