I was a guest speaker at Dawn Lesh’s MBA class at NYU Stern last night on the topic of brand measurement and valuation.
It was probably the best group of students that I have shared this material with. They were smart, ready to pitch in, keen to derive practical insight from the discussion. All in all, a thoroughly enjoyable and intellectually challenging session.
I came away from the session with new clarity about the nature of the challenge that marketers face in identifying the metrics that are most appropriate for them to measure. The challenge derives from the fact that there are multiple goals that marketers need to achieve:
- They need metrics that illustrate to the CEO and other senior leaders the role that marketing plays in informing and driving the strategy of the business (metrics that demonstrate the customer- and solution-centric aspect of the company’s business model)
- They need metrics that illustrate to the CFO the form and scale of the return that the company derives from an investment in marketing (metrics that quantify the uplift that marketing activity delivers to the short- and long-term performance of the business)
- They need metrics that measure the efficiency of marketing activity (metrics that inform the optimal allocation of marketing resources)
The academic literature is helpful in suggesting a taxonomy of metrics:
- Customer mindset metrics (such as levels of engagement)
- Product market outcomes (such as market share or price premium)
- Financial outcomes (such as increased revenues and earnings)
Using this taxonomy creates a natural narrative sequence that supports a “brand value chain” type of argument based on how marketing activity promotes the awareness and interest in a company’s products and services relative to a base case, and how this increased awareness and interest translates into improved performance in a competitive marketplace, and how this leads to higher revenues and earnings.
The weakness of this approach is that it tends to focus on the role of marketing communications rather than the broader range of activities that together create the basis for a differentiated customer experience.
I suggested an alternative construct that focuses attention on whether the metrics were designed to measure the impact of marketing (not just communications) as viewed from (1) the customer perspective or (2) the company’s perspective; and whether the impact was being viewed with (a) a short term perspective or (b) a long-term perspective.
This construct results in a much greater level of specificity in the response to the “what is the ROI on marketing?” – it clarifies whether the question is one about the financial efficiency of a specific campaign; or a more strategic question about the advantages of a customer- or solution-centric business strategy vs an innovation- or production-specific business strategy.
The January 2013 edition of Harvard Business Review carries a short piece that I co-authored with Rich Ettenson of Thunderbird and Eduardo Conrado of Motorola Solutions on how the 4Ps framework can be adapted to make it relevant to the B2B context:
Over the past 3 1/2 years, I have posted 250 times on the topic of marketing finance, and have made a relatively crude distinction between the “create value” and “measure value” dimensions of the topic.
I am happy to report that I have recently completed two exercises that enable me to be more sophisticated in identifying the major topic clusters that fall under the banner of marketing finance.
The first exercise was to have four separate researchers (including myself) conduct a review of the 250 posts, and develop their own classification of the major themes. The second exercise was to commission Radian6 to do a topic cluster analysis of online dialogue over the past 6 months using 20+ key search terms related to marketing finance.
I will spare you the gory details of the various iterations in the analysis performed during each exercise. The punchline is that both exercises concluded that the “meta topic” of marketing finance can be sub-divided into four major topic areas:
- Business strategy and the role of marketing
- How customers perceive value
- Measuring the resource base of companies
- Marketing performance measurement
In 2013 I will use these 4 topics as the organizing framework for my research and writing.
I am delighted to report that the January edition of HBR will include a piece on how the 4Ps of marketing need to be adapted for the B2B context.
Co-authored with Rich Ettenson and Eduardo Conrado, the CMO of Motorola Solutions, we analyze how the 4Ps lead to an excessive focus on product-centric strategies that are at odds with what B2B clients want. Where previous authors have either proposed expanding the number of Ps or dispensing with the framework altogether, we came to appreciate the wisdom in the 4Ps framework and recommend a broader interpretation of each P to match the reality of enterprise selling.
I will post the text once the article is officially published.
I have just put the final touches to the summary report on the interview program that T2 commissioned this summer into key trends in asset management. We used Impact Consulting from the Rotman School of Business at the University of Toronto to identify and interview 19 asset managers on four main topics:
- The reality (or otherwise) of “barbell investing”
- Their major strategic challenges
- The key sources of competitive advantage for an asset amanger
- Which investment management activities can/should be outsourced
The interviews were ably conducted by Greg Stewart whose prior experience in the insurance industry made him a well-informed and insightful interviewer.
Coincidentally, T2 was commissioned in September to conduct an interview program for one of the top 10 global asset managers into their value proposition. Together, the two pieces of research have provided us with a very detailed understanding of the current climate in investment management, and into the ways in which asset managers can create and capture value.
Let me know if you would like to receive a copy of the summary of the first research assignment.
I am in the middle of a fascinating assignment to establish the basis for a compelling value proposition in asset management. Fascinating because you would think that “performance” was all that mattered. But it turns out that “performance” is a very nuanced concept, especially since the Global Financial Crisis in 2008. Performance used to be a simple concept – whether you did or did not beat your benchmark. That worked fine so long as the benchmark was going up. But when the market tanked, many investors realized that the performance they wanted did not consist of beating a benchmark (especially if that benchmark was declining). So it has now become fashionable to talk about “outcome-driven investing” where the outcomes might be expressed as “capital protection” or “volatility minimization” or some absolute level of return.
So “performance” has become a much more interesting topic.
But “performance” turns out not to be the end of the story. You see, performance can only be measured retrospectively. Past performance is no guarantee of future performance, as they say. So the question is – what other factors are relevant in trying to make a judgement about who will perform in the future?
So it turns out to be a much more interesting exercise than I anticipated to determine 1. what definition of future performance investors want and 2. what factors are relevant in the decision about which asset manager is best placed to deliver it
Wouldn’t it be useful for marketers to have a credible “rule of thumb” across different industries for the percentage of enterprise value represented by brand?
That was the subject of the latest piece of analysis that Type 2 Consulting conducted for the ANA (the Association of National Advertisers). We have often expressed concern over the variation in the brand values ascribed to individual brands by the different agencies who publish brand valuation league tables, but confidence that the combination of all these data points would provide a reliable estimate of the relative importance of brand value at the industry level.
Here are the key steps in our approach:
- We combined the data from the brand value league tables published by four agencies for the last four years (2009 to 2012) using the lists of the top 100 brands published by Eurobrand, Interbrand and Millward Brown, and the top 200 from the Brand Finance top 500 list. These 14 league tables (Eurobrand first published in 2011) featured 351 brands and 2,028 valuations
- We then isolated the 315 brands and 1,803 observations that belonged to 283 publicly-owned companies (companies such as P&G, Unilever, Diageo and Nestle have multiple brands on the list)
- We assembled the financial data for these 283 companies for the times periods relevant to each brand value observation
- We then calculated an average brand value per company per year and expressed this as a percentage of the enterprise value (essentially, market cap plus long-term debt minus cash) of that company for that year
- We then calculated the average brand value per industry sector for each of the four years
- We then generated our industry “rules of thumb” by aggregating brand value and enterprise value of the relevant brands/companies across the four years
The results pass the “sniff test”:
- The industry group with the lowest proportion of brand value to enterprise was was energy (5.0%)
- The industry group with the highest level of brand value to enterprise value was consumer services (42.2%)
- The overall average across industries (excluding financials and utilities) was 18.5%
The result is, we believe, the most credible data yet available to marketers about the proportion of enterprise value represented by brand across different industry sectors.
Email us if you would be interested in receiving the full list of industry groups for which we generated a “rule of thumb” for brand value
The last three weeks have seen the publication of the 2102 lists of the world’s 100 most valuable brands by Interbrand and Eurobrand. So I have taken the time to review each, and to conduct a comparison of results across the four lists (Brand Finance and Millward Brown being the other two).
Here are some basic statistics:
- There are 212 brands that appear across the four top 100 lists, of which only 27 appear on all four lists
- There are 63 brands that appear in the four top 30 lists, of which only 9 appear on all four top 30 lists
- The total value of the top 100 brands ranges from $2.6 trillion (Eurobrand) to $1.4 trillion (Interbrand)
- The value attributed to the 27 brands common to all four lists ranges from $1,071 million (Millward Brown) to $686 million (Brand Finance)
- The valuations given to the individual brands that are common to all four lists varies by a minimum of 30% (HP, American Express) to a factor of more than 4x (McDonald’s, Shell)
My conclusion is that brand valuation is still in its infancy (possibly, adolescence) as a business discipline. While these league tables provide a useful quantification of the financial value of brands in aggregate and by industry sector, the individual valuations are still too variable to be relied upon. Therefore, marketers should use brand valuation as a means of framing the economic significance of the brand assets they manage, but stop short of suggesting that brand valuation is reliable enough to be used as a performance metric.
Interbrand’s 2012 list of the world’s most valuable brands has just been published.
First let us bid farewell to the departed from the 2011 – history suggests that once gone, ne’er to return. So fare thee well Armani, Barclays, HTC, Nivea, UBS, and Zurich. Blackberry nearly joined the ranks of the departed, just retaining 93rd place after a 39% fall in brand value.
And hail bright new stars of the branding firmament – Facebook, Kia, MasterCard, Pampers, Prada, and Ralph Lauren. Well, not so new stars since five of these “new” names have already appeared in the Brand Finance or Millward Brown top 100 brand lists. Only Kia is genuinely new.
Otherwise the list was short on drama. Interbrand took the chance to update its valuation of the Apple brand – but event the 129% increase still leaves Interbrand’s valuation at only 42% of the value ascribed to the Apple brand by Millward Brown, but in the same ballpark as Brand Finance’s number. Other big risers were Amazon, Oracle and – somewhat more surprisingly – Nissan. Big losers included financial services (Credit Suisse, Goldmans – no surprises there) and some stumbling media brands (MTV and Yahoo), and Nokia. The latter is no Kia.
Ha! Might that be the world’s first brand valuation-inspired joke?