by Jonathan on May 14, 2012
Dunbar’s number is named after the anthropologist Robin Dunbar who theorized that the relative size of an animals neocortex determined the maximum size of the stable group (herd, pack, flock, school, pod) to which that animal could belong.
There is heated debate about what the number is for human beings. The number is derived from observations about other mammals, and empirical data about the natural group size observed for humans (such as the size of villages or fighting units) and is generally agreed to lie between 100 and 250.
Many argue that social media has changed the size of this number by providing a technology for maintaining far more relationships than have ever been possible in the past. It is certainly true that we now have the ability to know and keep in touch with more people than any previous generation in human history. But Dunbar’s criterion is not about the number of Facebook friends or contacts on LinkedIn or followers on Twitter – it is about stable inter-personal relationships.
My belief is that social media and electronic media more generally has not fundamentally changed our bandwidth for meaningful relationships. If anything, it may have reduced it – by crowding out the amount of time we spend on the minority of true relationships in favour of maintaining a much broader universe of more superficial relationships.
by Jonathan on May 2, 2012
One of the fundamental concepts in investment theory is the idea of an “efficient frontier” – that the combination of different asset types can result in a portfolio with a better risk/return ratio than that of any of the asset types individually.
The inventor of this concept, Harry Markowitz, won a Nobel Prize for his work, famously explaining that his work on the fiedishly complex covariance between different asset types merely proved that “you should not put all your eggs in one basket.”
The idea that individual assets can be combined to create something that delivers a benefit greater than the sum of the parts is something that marketers should take to heart. If you believe (as I do) that customers have multiple forms of need that they are trying to fulfill simultaneously (a need for some level of functional performance, some level of convenience, some level of certainty, and so on) then the goal of marketing is to determine the solution that delivers on those needs in the most cost effective ways.
Yes, “ways” – the secret is realizing that there is an “efficient frontier of customer value” represented by any solution that delivers an optimal ratio of customer benefit to cost. Just as different investors have different risk/return preferences that lead one to choose an “aggressive” portfolio and another the “conservative” portfolio, so customers will segment between those looking for a high benefit/high price solution and others looking for low benefit/low price. The key point to realize is that, from the perspective of the individual customer, each represents an optimal level of value.
As best I am aware (and I have done a fair amount of digging), I am the first person to have suggested the applicability of the concept of an “efficient frontier” in a customer value context, with forms of customer benefit representing the asset classes that need to be combined to deliver an outcome that has an optimal benefit to cost ratio for the customer. I think this is seriously cool. Am I right?
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by Jonathan on April 30, 2012
Finance theory tells us that a dollar tomorrow is less valuable than a dollar today. I had always assumed that the argument rested primarily on the issue of opportunity cost – what could I have invested that dollar in today, and how much would it have been worth tomorrow?
But with interest rates as low as they are right now and markets as volatile as they are right now, the issue becomes less about opportunity cost and more about certainty. The reason why a dollar tomorrow is not worth as much as a dollar today is because it is less certain, rather than because I could have used the dollar to earn a higher return over the next 24 hours.
When you add into the occasion the observation that humans weight losses approximately three times as heavily as gains, you understand why certainty commands such a high premium. Or, put another way, you understand why the long term is at a steep discount.
This is a big problem for marketers. A significant proportion of marketing activity is aimed at short term returns but a large proportion is focused on laying the foundation for success in the future. If the certainty of future returns are in doubt, then the value of marketing is decreased.
Unless, of course, we can show that brand-related profits are more certain than others forms of profit. The argument for brands then becomes as much one of risk mitigation as it is of demand generation.
Some interesting research is already underway in academia about the impact of brands on firm-specific risk. It sounds esoteric – but it is certainly relevant to the value we place on the long term.
of uncertainty, this a dollar tomorrow is
by Jonathan on April 27, 2012
Today marks the third anniversary of my first blog post. In the intervening time, I have posted some 215 times on this blog – not exactly a world record, but I am proud that all of these posts have had a consistent focus on Marketing Finance.
Marketing Finance has emerged as a mainstream discussion topic over the past three years, and now represents an established area of study within the academic community. Within the broader community, I have noticed that there are two major strands of conversation around the topic. The first strand focuses on how marketing and branding add value to a business; the second strand focuses on how marketing should be measured.
I have tried to devote approximately equal attention to both strands of the discussion in this blog. On the value creation side, I have explored the existence of two world views in business, the relationship of customer value and shareholder value, plus the role of corporate brand strategy during mergers. On the marketing measurement side, I have explored the topics of intangible value, brand value, ROI and accountability.
I hope that all readers have found something of interest. As always, I welcome your comments and feedback.
by Jonathan on April 26, 2012
I participated in a client workshop on “brand voice” today. Despite being in the marketing business, I must admit to being something of a skeptic when it comes to the topic of voice.
After today’s session, I realize that my skepticism is a direct reflection of the rather superficial way in which I have treated the topic – namely that it consists of no more than defining a list of the attributes that should characterize the tone of a company’s communications. For some reason, whatever the brand, the lists I generated always included “optimistic” and “human”…
As a result of today’s workshop, I have a new appreciation for the science (and art) of defining the “how we communicate” in such a way that it magnifies the “what we communicate.” It seems to me that there is enormous potential to create a self-reinforcing dynamic between the content, tonality and visual style of a brand.
Alexander Pope famously captured this idea in his phrase “what oft was said, but ne’er so well expressed.” What I take this to mean is that because of the incredible sensitivity of the human ear, eye, and brain’s to subtle variations in tone, shade and message, differentiation may be achieved as much by how something is said as by what is said.
This is a profoundly exciting thought. B2B marketers exist in a universe where most competitors can – and do – say pretty much the same thing. This suggests that the secret to differentiation may lie as much in the creation of a distinctive voice and visual style as it does in a distinctive message.
by Jonathan on April 20, 2012
I have been asked which countries have a lower average percentage of enterprise value represented by tangible assets on the balance sheet than the US.
As regular readers will know, the percentage was 39% for the US versus the global average of 47% (all numbers calculated as at end June 2011). Of the major G20 economies, three countries had an even lower percentage of tangible assets as a proportion of enterprise value – Switzerland, UK, and Australia.
For Switzerland, the percentage was 32% – a number that presumably reflects the importance of the pharmaceutical sector in the Swiss economy (as a sector, pharma has one of the lowest percentages of tangible assets to enterprise value – 23%).
By contrast, Japan book-ended the list at the other end, with a tangible asset ratio of 80%…
by Jonathan on April 19, 2012
As part of the preparation for the recent UNC conference on “Brands and branding in law, accounting and marketing” I merged two sets of data that I have historically conducted separately – data on the level of intangible value in the global economy; and data on the valuation of individual brands.
The data on intangible value shows that, for the 13,000+ companies globally with a market cap of $100mn or more, tangible assets only represented 47% of their aggregate enterprise value. This number fell to 43% for the largest 500 companies in the world – and to 39% for US companies.
The lower number in the US reflects the relative skew in the US economy towards knowledge-based industries and away from industries such as materials, energy and utilities (in which tangible assets represent around 70% of enterprise value).
For the consumer staples and consumer discretionary industries globally, tangible assets represent only 35% of enterprise value.
So how much of this intangible value is represented by brands? To answer this, I took the 121 publicly-traded companies in 2011 whose brands appeared on the Interbrand, Miilward Brown, Brand Finance or European Brand Institute lists of the top 100 global brands.
The intangible value analysis for these 121 companies revealed that tangible assets represented 41% of their enterprise value. Brand value (I used the average of the valuations appearing on the four brand lists) represented 19%.
I then looked at the 64 B2C companies within these 121 companies, tangible assets represented only 26% of enterprise value – and brand value a further 24%.
For the 57 B2B companies, this implies a tangible asset ratio of 54% – and brand value of 14%.
These are useful rules of thumb for marketers to be able to share with the Finance colleagues when discussing the nature of the true asset base of their companies.
by Jonathan on April 17, 2012
Ancient Greek had four distinct words for love: agápe, éros, philía, and storgē. They may provide an interesting framework for thinking about the variety of brand relationship types.
Éros referred to passionate love – an obsession with the person or object. It could be the analogy for brands that we “just have to have” and “cannot live without.”
Agápe referred to a deep sense of affection. It could be the analogy for brands that we hold in high esteem and consider to “stand for something admirable.”
Philia referred to friendship and loyalty to friends, family, and community. It could be the analogy for brands that make us feel part of a community, to feel a sense of belonging based on shared values.
Storge was a general term for affection, typically for one’s own family. It could be the analogy for brands that we feel comfortable with based on long experience and familiarity – we are glad they are around, but they have lost the power to surprise and excite us.
It seems to me that many of the brand attributes that typically appear in brand image research could be mapped onto these four concepts – yielding insight into the basis of brand relationships and the nature of the expectations that go with each type of relationship.
by Jonathan on April 13, 2012
For months, I have been looking forward to the conference on “brands and branding in law, accounting and marketing” that Natalie Mizik of the Kenan-Flagler Business School at UNC put together, and which was held over the past day and a half. It was every bit as good as I had hoped it would be.
We were treated to a multi-disciplinary approach to branding that I think clarified the existence of three primary definitions of brands:
- An intellectual property-centric view (favored by the lawyers and accountants)
- A cash generating view (favored by Finance)
- A customer-centric view (favored by marketers)
Each definition is valid for specific purposes – and the conference was a great opportunity to explore what these views have in common, rather than fixate on the differences. The big challenge remains, however, that the marketing definition is externally-oriented and does not lend itself to easy mapping against the internal resources of the company that are responsible for making this “brand promise” possible.
As I expected, the event was something of a “reality check” for marketers to be confronted with how their discipline is viewed from outside. Most of the speakers who were from other faculties admitted that this was the first time in their lives that they were at a marketing conference, having never perceived the relevance of marketing to their field.
I was happy that the panel on brand valuation was on the second day, which the majority of non-marketing participants did not attend. It was rather unseemly “bun fight” where each speaker did their best to assert the superiority of their approach over the others. One claimed superior rigor, another superior accuracy, another superior practicality, another superior insight for strategic decision making. Each speaker was probably right – but in emphasizing their differences, it was left to the audience to derive their commonalities.
As always, I found there to be three enormous benefits to attending an academic conference:
- It is an environment that provokes me to “think big thoughts”
- I always find a couple of the new pieces of research to be directly relevant to my client work
- It is great to reconnect with the cadre of academics that share my passion for understanding the business impact of marketing
by Jonathan on March 30, 2012
Many B2B companies struggle with developing compelling answers to the questions “what is unique about us?” and “what can ONLY we say?”
It reveals a pre-occupation with differentiation from competitors – an important question, but not the topic that is critical to their business success. The question that is central to B2B business success is “for what types of clients are we able to deliver unique value?”
B2B success is primarily driven by the concept of “different for” as opposed to “different from” – in other words, the secret is to focus first on the clients you want to serve, and only then on the competitors you want to distinguish yourself from.
Another way of expressing this mindset shift is in terms of “relevant to” rather than “relative to” – B2B companies should focus on the clients they want to be relevant to, and only then about the competitors relative to whom they want to be differentiated.
The reason why this distinction is important is that the client’s question “what makes your company different?” is not an invitation to talk about your company in the abstract. The intent behind the client’s question is “why is your company able to deliver differentiated value to me as a client?” – it should receive an answer about why the company is better for them, and not an answer about why the company is better than its competitors (however true that might be).
