by Jonathan Knowles on March 10, 2010
The statement that “our brand is our most valuable asset” appears almost as frequently as the statement “our people are our most valuable asset.” But they cannot both be right, surely?
Many people dismiss both statements as pure pablum – soothing words uttered by senior management without meaningful content. In some ways I am tempted to agree. If the statements could be re-phrased as “people would not buy our products/do business with us if they thought we were untrustworthy” and “this company would fail if our employees did not show up for work,” then their utter banality would be revealed.
However, the popularity of the statements makes me believe that, at least some of the time, something more profound is being said. In an environment in which the majority of business value is represented by intangible assets (that is, things other than bricks and mortar, inventory and cash), understanding the nature of those assets is a critically important business issue.
“People are our most valuable asset” is self-evidently true for companies that are talent-driven (professional services firms, research-based companies, sports teams, media properties). It is the ingenuity of a small group of people that truly drives the value of the business (think Steve Jobs or Larry Fink) .
So, in what sense – and in which industries – might it be true that “brands are our most valuable assets” ?
The sense in which the phrase is insightful is when “brand” is used to mean “our perceived uniqueness in the minds of our customers” and not simply “reputation.” This was the meaning that John Stuart, chairman of Quaker, had in mind when he made his famous remark that “if this company was split up, I would give you the land and bricks and mortar, and I would take the brands and trade marks, and I would fare better than you.”
The industries in which “perceived uniqueness in the minds of customers” is truly the most important asset of the business are consumer industries (alcohol, cars, electronics, entertainment, fashion, retail) in which brands are a form of self expression for consumers; or “distress purchase” industries (insurance, financial services, medical products, certain technology products) in which consumer preference is driven by loss aversion.
It is hard to think of a B2B industry in which it is true that “brand is our most important asset.” Possibly certain types of professional services? Suggestions welcome.
Tagged as:
Business Strategy,
Causal Model,
Intangible Value,
Intellectual Property
by Jonathan Knowles on March 7, 2010
I am just getting round to reviewing Brand Finance’s 2010 list of the world’s 500 most valuable brands that they published in mid February.
As always, I appreciate the extra depth that Brand Finance provides in its report versus those of Interbrand and Millward Brown – the list covers the top 500 brands (vs. 100); provides data on market value of the parent companies: and gives explicit information on the perceived riskiness of each brand (via the brand rating score).
The headline summary is as follows:
- The brand value of the top 100 brands rose by 23% to reach $1.50 trillion, driven by a resurgence in the brand values of many financial services companies
- You now need a brand value of over $7.9 billion to make it into Brand Finance’s top 100 brands (up from $6.2 billion last year)
- WalMart still tops the Brand Finance list (it does not even feature in Interbrand’s top 100)
- The next five brands are common to the Interbrand and Millward Brown lists – Google, Coca-Cola, IBM, Microsoft and GE
- Based on Brand Finance’s data (I have yet to replicate this), the total economic value of the parent companies of the top 100 brands fell by 4% to $8.51 trillion so brand value now represents 17.6% of total economic value (up from 13.7% last year)
- Based on the data for all 500 brands, brand value represented 15.4% of the total economic value of their parent companies (up from 14.2% last year)
As always, I find the aggregate data a very helpful reminder of the economic significance of brands. I will report back with more observations at the sector level in a future post – as in previous years, Brand Finance seems to be believe in a highly influential role for brands in financial services.
Tagged as:
Brand Valuation
by Jonathan Knowles on March 1, 2010
I participated in a great discussion today with a prospective client about how we might define a robust concept of brand equity, and put in place a system for measuring it over time.
The prospective client is in a relatively low involvement category (financial services) and so is rightly skeptical of the applicability of a number of FMCG models of brand equity to their context. Attitudinal loyalty is low in financial services – but switching costs are high. It is the exact inverse of many consumer goods which have high attitudinal loyalty but experience high levels of switching.
Our discussion focused heavily on our recommended definition of brand equity and the extent to which this definition had been tested and validated. Specifically, what was the evidence that changes in brand equity were associated with higher business value?
Great questions and – thanks to Natalie Mizik at the Graduate School of Business at Columbia and Bob Jacobson at the University of Washington – there is really impressive academic validation for the relationship between the concepts of Relevance and Differentiation and business value.
The precise definition of brand equity will still require a great deal of refinement as we try to thread a path between a definition that skews too strongly towards a purely attitudinal measure that lacks a robust connection to behavior – and one that is purely empirical and fails to deliver insight into motivation.
The decision about who gets the assignment is in the lap of the Gods now – but whichever agency gets the work will be lucky to work with such an intelligent client.
Tagged as:
Brand Equity,
Business Value,
marketing and finance
by Jonathan Knowles on February 27, 2010
I promised to report back on the reaction to our mini white paper on “Does this soft stuff matter?” among the senior leadership team.
It was a gratifying experience. The “brand framework” provided a clear model for debate around what the relevant messaging was for external audiences versus internal audiences. It demonstrated why not every expression of the brand needs to tell the whole story (the reason why previous versions of the vision, mission, promise, value proposition, positioning etc had all sounded pretty much the same). And it reinforced the need for simplicity - agreeing on a single idea that they could make their own.
There remains a healthy level of debate about what that single idea is, and how it should be expressed. But the path to getting there is now clear.
Tagged as:
Business Strategy
by Jonathan Knowles on February 25, 2010
In collaboration with a client, we have produced a mini thought piece under the title of “Does this soft stuff matter?”
As you might imagine, the target audience is the group of brand skeptical business leaders to whom we will be presenting later today. We have three objectives:
- To allow them to review the “business case for brands” at their preferred speed (the document is laid out so that it can be skimmed – or read in detail)
- To provide a reference source should there be questions during our presentation
- To demonstrate that we are serious about using branding to drive the success of the overall business
To my mind, this last point is key. Marketers consistently underestimate the degree of mistrust of their motives and priorities. I believe this mistrust needs to be acknowledged and dealt with. Doing so involves three things:
- Relevance: our document explains the “brand value chain” of how marketing aims to increase the value of the business
- Alignment: our document summarizes the evidence for the impact of marketing – measured in terms of financial value
- Rigor: our document lays out the brand framework we are using, and explains the role of, and specific audience for, the various components (such as vision, purpose, promise, values etc.)
I will report back tomorrow on the degree of success of this approach!
Tagged as:
Brand Strategy,
Marketing Accountability
by Jonathan Knowles on February 16, 2010
Another day, another request (relayed via an agency) for a brand valuation. As best I can tell, the client’s interest in brand valuation is purely a function of the desire to prove that marketing is important. Like many others, this client appears to believe that the business case for marketing and the demands for marketing accountability will all be met by a brand valuation.
Regular readers of this blog will know why I consider this belief to be misguided. Others with the desire to find out can review the posts and articles in the brand valuation section of the topics tab of this website.
If brand valuation is not the answer, then what is? Well, the answer is a function of the question. In my experience, there are four big questions as regards the measurement of marketing performance. The first step towards demonstrating marketing accountability is working out which of the four questions you are really being asked.
The four questions populate the four quadrants of a 2×2 matrix. On one axis is the focus – customer perspective vs. financial perspective. On the other axis is the time frame – short term (next 12 months) or long term. All important questions to do with marketing accountability and measurement fall into one of these four quadrants.
The four questions can be articulated as follows:
- How do our customers behave? (customer perspective/short term)
- What is the impact of marketing on current sales and profit? (financial perspective/short term)
- How strong is our franchise with customers? (customer perspective/long term)
- What is the impact of marketing on our business value? (financial perspective/long term)
All four questions are worthy of study – and there are specific measurement techniques appropriate to each. Brand valuation is a partial answer to one of them (the financial perspective/long term one).
Tagged as:
Brand Measurement,
Brand Valuation,
Business Value,
Customer Value,
Marketing Accountability,
Marketing ROI
by Jonathan Knowles on February 15, 2010
I am a strong believer in the strategic importance of marketing – so it may seen a little odd that I am conflicted about the importance of companies having a Chief Marketing Officer.
Let me explain my thinking – the ideal scenario is that marketing (defined as a focus on the creation of customer value, and the definition of a powerful go-to-market strategy) is so embedded in the thinking of the executive leadership team that there is no need for someone to be designated as “chief marketing officer.” All major decisions are already debated using the twin lenses of customer value and shareholder value.
From this perspective, the creation of an executive-level CMO position is an explicit recognition that a company does not naturally see things through the lens of customer value, and needs to delegate a specific individual to play that (remedial) role. No wonder that the average tenure of a CMO is so short!
Tagged as:
Business Value,
marketing and finance
by Jonathan Knowles on February 9, 2010
The “hard” sciences (such as physics and chemistry) are often obsessed with the search for universal truths – those reassuring phenomena (such as gravity) that are constant across time and place.
In our desire to present marketing as a “hard” science, marketers often fall into the same mindset of wanting to find the one, perfect solution to a given problem – the optimal combination of product features that will yield the highest conjoint scores; or the positioning concept that will have universal appeal.
This is a dangerous myth. If I have learnt one thing, it is that anything to do with humans is going to involve a limited dose of universality (in the form of a Jungian archetypes or a levels of need in Maslow’s hierarchy) and a big dose of variability. For example, while it is true that all humans crave status, we have remarkably different preferences for the specific way in which this need for status should be met - for some it is about flashy cars, for others it is about the number of followers we have on Twitter. For some, security is essentially a financial concept; for others, security is predominantly an emotional concept.
This variability means it is a myth to try to conceive the “perfect” product or positioning. There is no universal “perfection” – the concept of “perfect” only makes sense in the context of a clearly defined audience.
This means there are as many “perfect” products or positionings as there are clusters of individuals with similar wants and needs. The goal of marketing is to identify the optimal strategy for appealing to an economically viable number of these clusters.
This inevitably means that brand strategy is based as much on who we are NOT trying to appeal to, as much as who to appeal to. It is liberating to recognize that branding is not about creating universal appeal – it is about identifying the specific segment of the population to whom you are able to present a uniquely compelling proposition.
Tagged as:
Brand Equity,
Brand Strategy,
Business Strategy,
Earthlings,
rational,
Vulcans
by Jonathan Knowles on January 31, 2010
Yesterday’s post highlighted the distinction between the proportion of marketers that needed to have a basic fluency in finance (in our view, 100%) and the proportion that is actively seeking to integrate finance into how they think about marketing (in our view, a significantly smaller number).
We know that people do not go into marketing because their first love is numbers. People go into marketing because they love creativity – specifically, the type of creativity that creates a human connection.
Part of the T2 mission is to publish ideas and material that helps marketers craft productive responses to questions like “how do we know our marketing is working?” and “what’s the ROI on that?” and “how is marketing contributing to our business strategy?”
But the core of our mission (and the part for which we get paid) is to support marketers in companies with science-, engineering- or finance-dominant cultures. These are environments that are often deeply brand-skeptical because they assume that “emotion” is “illogical” (a classic Vulcan trait). Our role is to show that brands are about creating “emotional logic” – and that this is an essential enhancement to their existing “functional logic” if their goal is to have customers who want to have a relationship with their company, not just buy their products.
For these marketers, integrating marketing and finance is a need, not a want.
by Jonathan Knowles on January 30, 2010
Type 2 Consulting was created to serve an evident need for more business-literate marketers. Our explicit ambition was – and remains – to support the emergence of a “next generation” of marketers who are able to integrate marketing and finance. We consider this combination of skills to be essential for the creation of strategies that balance the needs of customer value and shareholder value.
Marketing and finance is only one dimension of the integrated thinking that we believe is necessary for this “next generation” of marketers to demonstrate. We believe that business-literate marketing involves having a working understanding of strategy, technology and (in a services company) HR as well. But the integration of marketing and finance is our primary focus.
We were aware that only some marketers would be interested in our services, although we believe passionately that all marketers should consider that basic fluency in finance to be essential. But it took a remark by one of the other speakers at the Thunderbird Winterim two weeks ago to crystallize my thinking about the segmentation of Type 2’s audience. Perceptively, he remarked “The participants wanted to hear about my topic – but they needed to hear about yours.”
I am totally OK with the fact that most marketers do not like finance. But we all like respect. If the answer to the title of this blog post is “the respect of my business colleagues”, then I see basic financial literacy as something that all marketers should want, not just need.
Tagged as:
Customer Value,
marketing and finance
