Attendance at any marketing conference always provokes conflicting emotions for me:

• A sense of wonder at the creativity that marketers demonstrate in finding ways to improve the lives of their target customers in a myriad of small and big ways
• A sense of despair about how marketers are often their own worst enemies in terms of how they perceive and present the value of their business contribution

Yesterday’s conference at NYU Stern was no different.  It contained some uplifting examples of inventiveness in business models, communications, even research design.  And it revealed a frustrating lack of consensus about what the mandate for marketing is, so relatively trivial (but nonetheless fascinating) aspects of social media were discussed with the same enthusiasm as more substantive marketing contributions to business transformation.

My observation is that marketers will not gain the respect they deserve (or secure the budgets they want) until they develop compelling answers to three questions:

1. In what ways is marketing critical to the success of this business?
2. How do we decide how much to invest in marketing, and how to allocate this investment?
3. What are the business metrics on which we expect to observe the beneficial impact of our marketing?

Marketers forget that the business case for marketing is not intuitively obvious to a management audience that believes that customers are purely rational economic agents, and that marketing is just about communications.  To appeal to this brand skeptical audience, marketers need to frame their mandate in terms of defining and delivering distinctive value to customers at an attractive economic margin to the business.  Only once the business audience recognizes that marketing is about customer value (not just advertising) and about enhanced business performance (not just creativity), are they likely to appreciate the scale of the contribution that marketing can make.

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I attended the “Measuring & Managing Brands in a Digital World” conference put on by the Center for Measurable Marketing at NYU’s Stern School of Business today.

It felt like a “new world” agenda being discussed by a roster of largely “old world” practitioners, agencies and academics. There were very few true digital natives in the room, and fewer still at the podium. As a result, the quality of the presentations was highly variable. There were some moments of brilliance but there were also too many examples of “shiny metal syndrome” (infatuation with the possibilities of digital measurement, independent of the significance of digital to overall business value) which contrasted with the rearguard action being fought by providers of existing methodologies who were keen to prove their ongoing relevance. And then there were the tedious presenters who abused the podium to promote their own company/book/profile.

As a result, the list of what I learned about how to improve the measurement and management of brands in the new digital environment is disappointingly short. So, sadly (because I had high expectations for the conference), I am hard pressed to give the event more than a C+.

How might it have been better? Here are a few suggestions:

• Include a “big picture” keynote that outlines a point of view about why and how the advent of digital is changing the possibilities and practices of brand management and measurement
• Create a conference agenda with a strong narrative structure that explores different aspects of the conference theme – such as topics along the lines of “how digital is changing the way that consumers behave” or “how digital is changing the possibilities for brand measurement” or “how to structure a marketing organization that marries the best of traditional and digital”
• Enforce the “do not abuse the podium for self promotion” rule

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I have just completed one of my periodic reviews of the latest brand valuation league tables from Millward Brown (published last week) and Brand Finance (published in early March).

Here are the basic statistics for the comparison of the most recent league tables published by Millward Brown (May 2013), Brand Finance (March 2013), Interbrand (October 2012) and Eurobrand (September 2012):

• The four top 100 lists include a total of 211 brands, but only 28 are common to all four lists and 108 appear on just one of the four lists
• The four top 30 lists include a total of 62 brands, but only 11 are common to all four top 30 lists and 35 appear on just one of the four top 30 lists

Restricting the analysis to the three more established providers (Interbrand has published annually since 1999, Millward Brown since 2006, and Brand Finance since 2007):

• The three top 100 lists include a total of 179 brands, but only 34 are common to all three lists and 92 appear on just one of the three lists
• The three top 30 lists include a total of 53 brands, but only 12 are common to all three top 30 lists and 26 appear on just one of the three top 30 lists

This diversity of opinion is mirrored in the valuations of the 34 brands common to all three lists:

• The aggregate value of these same 34 brands ranges from $1.57 trillion (Millward Brown) to $935 billion (Brand Finance)
• The valuations for 19 of the 34 brands differ by a factor of 2 or more, with the most pronounced discrepancy being in the value ascribed to the Shell brand ($4.8 billion according to Interbrand’s valuation but $29.8 billion according to Brand Finance – a difference of 6.2x), but with factors of 3 or more being observed between the valuations for Banco Santander, IBM, McDonald’s, Nissan, SAP and UPS

These inconsistencies reveal just how subjective the art of brand valuation remains.  Each of the providers uses a perfectly credible “economic use” approach so the differences in the resulting valuations is a reflection of the assumptions they put into their respective models.

This is disappointing for marketers who are hoping that brand valuation can serve as some form of “silver bullet” that definitively and unarguably proves the contribution of marketing to business value.  We are a long way from being there yet.

The brand valuation league tables provide support for the assertion that “brands are important economic assets” – but even at this aggregate level, the degree of difference between the opinions of the three main providers reveals worrying large (based on the 12 brands common to the three top 30 lists, the proportion that brand value represents of the overall enterprise value of their respective parent companies is 18% according to Brand Finance, 22% according to Interbrand, and 30% according to Millward Brown).

Tagged as: Brand Valuation, Intangible Value, Marketing Finance, Measure Value

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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:

https://archive.harvardbusiness.org/cla/web/pl/product.seam?c=23637&i=23639&cs=7cfe933bd3f1b5f6bcaa09f0de5b4aa6

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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.

Tagged as: Brands & Business Strategy, Business Value, Value Proposition

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Social media continues to be a hot topic in marketing circles.  Rightly so, because we are living through a social Copernican revolution in which we are realizing that companies are not the centre of customers’ universes.  Needs and wants are.  Companies are only perceived to be of value so long as they provide the means for customers needs and wants to be met.

While most of the attention has been devoted to how web 2.0 enables companies to understand the immediate wants, needs, location and mindset of customers in order to react more effectively – or to influence their immediate behavior – T2 believes that the longer term value of social media has been somewhat overlooked.  In this short video (2 minutes), we identify three issues on the CEO’s agenda that can be better informed through the use  of social media:

http://www.youtube.com/watch?v=mfUkwP9FY2Y&feature

Tagged as: Brands & Business Strategy, Customer Value, social media, Vulcans and Earthlings

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One of the things that comes as a big surprise to the marketers that I speak with is the extent to which “branding” is seen in a negative light by business and finance audiences.  Marketers are used to having to explain that branding is not just advertising and/or a logo, but they are not used to having to explain that branding is not deceit and/or manipulation.  Marketers are used to being regarded as “business light-weights”, but they are not used to being regarded as belonging to the “dark side.”

I attribute the hardening of attitudes towards branding and marketing over the past decade to the publicity given to the advances in neuro-science.  Journalists have been quick to make the connection between the deeper understanding of how the human brain works and the ability of marketers to manipulate our behaviour as consumers.  Dan Ariely of MIT has emerged as the high priest of the “consumers are irrational” movement, and marketers like  Martin Lindstrom (the author of “Buyology”) have rushed in to explain how marketers can exploit this irrationality.

The fact that our comprehension of human motivations is still in its infancy, and that the most common forms of cognitive processing errors by humans were documented by Tversky and Kahnemann decades ago, has not prevented a rapid souring of business attitudes towards branding.  When you add in the broader societal skepticism towards business since 2008, it is easy to understand why branding has gone from being perceived to be a “nice to have, but not necessary for business success” to a potentially sinister activity.

That is why I avoid the B word (branding) when I speak with business leaders.  It is a term that has become laden with so many unhelpful associations that its use inevitably leads to a long debate about what branding actually is, not what it is viewed as.  And I want to keep the focus of the conversation on how marketers can improve the value of the business.

So I was intrigued to see the following observation in today’s post on Place Branding on Brand Strategy Insider (one of the marketing blogs that I regard as consistently publishing some of the best content on marketing):

Many city leaders don’t understand the benefits and concepts involved in place branding (or marketing for that matter!). Some are simply uncomfortable using the term “branding,” or even “marketing,” and the city’s name in the same sentence. We have found that when city officials think in terms of their city’s image or reputation rather than its brand, they are more likely to “get it.”

Have others experienced this hardening of attitudes towards branding?  What do you do to counter it?

Tagged as: Brands & Business Strategy, Create Value, Marketing Accountability, Vulcans and Earthlings

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Lululemon reported healthy earnings last Thursday – but its share price was punished (down 9%) because analysts were disappointed by the slowdown in sales growth.

It is a familiar story of the pressure that public companies face to continuously exceed earnings expectations so that their share price gets ratcheted up, reflecting the market’s impounding of a higher growth rate.

This creates enormous pressure to drive short term earnings and to “borrow from the future” by developing incremental, non-strategic revenue.  For companies with strong brands, this temptation is almost irresistible – there is easy money to be made by inking a licensing agreement, or buying in quick-turn, generic merchandise that can be marked up and sold off.  But, over time, these actions undermine the very thing that made the company special – its reputation for high quality, distinctive products.

So I was delighted to read about the very robust defence that the Lululemon CEO Christine Day gave about the company’s strategy – “we sell high-value, high-margin garments… we do not want to be buying in bulk just to meet demand, because we will then lose what makes us special.”

She elaborated “We are always balancing future success with immediate success and as our garments get a little more complex, it is the cost of creating the market and being a market leader.  We don’t want to chase a short-term sales and sacrifice our reputation for quality or execution.  That’s a slippery slope and we don’t want to be there.”

I wish that this was the kind of response that we heard from more CEOs.  Especially those of new IPOs like LinkedIn and Facebook.  Now that these companies are public, they are under huge pressure to justify their stratospheric valuations by showing rapid revenue and earnings growth.  Early indications are that they are going to cave and chase the easy dollar that will end up destroying what made them special in the first place.

Tagged as: Brands & Business Strategy, Business Value

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I am in the process of developing decision trees covering three important aspects of brand strategy: merger branding; co-branding; and brand valuation. In each case, the goal is two-fold – to outline the range of available options (the end points in the decision tree); and to define the circumstances under which each is the optimal decision.

It is a surprisingly hard process.  The challenge that I have set myself is that each decision tree should be based on no more than four questions (and, ideally, three).  Deciding what those questions are, and the sequence in which they should be asked, is a lot more complicated than it first appears.  The questions need to have mutually exclusive answers and, together, lead to a comprehensive set of outcomes.

But there is a moment of clarifying simplicity when you finally “crack the code” and realize that you have come up with the Occam’s Razor of decision trees!

Tagged as: Brand Valuation, Brands & Business Strategy, Merger Branding

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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.

Tagged as: Brands & Business Strategy, Vulcans and Earthlings

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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:

1. An intellectual property-centric view (favored by the lawyers and accountants)
2. A cash generating view (favored by Finance)
3. 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:

1. It is an environment that provokes me to “think big thoughts”
2. I always find a couple of the new pieces of research to be directly relevant to my client work
3. It is great to reconnect with the cadre of academics that share my passion for understanding the business impact of marketing

Tagged as: Brand Valuation, Brands & Business Strategy, Marketing Accountability

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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).

Tagged as: Brands & Business Strategy

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Many B2B marketers suffer from a misplaced concept of differentiation.

Differentiation is different in B2B than B2C.  In B2C, the emphasis is on product-specific differences – typically, tangible and visible differences in function, performance or design.  The concept of differentiation tends to revolve around the question of “in what ways is our product different from others?”  In B2B, the products and services are typically more complex and an attempt to define differentiation in terms of product characteristics leads to extremely granular arguments about “feeds and speeds” that leave most target audiences (other than product engineers) bored and confused.  My experience is that the most meaningful definition of differentiation in a B2B context is “why is this product right for us?”  The answer is not that the product is necessarily the fastest, brightest, most flexible, cheapest on the market but that it is the one that best conforms to the specific needs of the individual client.

The key question is not “different from whom?” but rather “different for whom?”  The key issue in B2B differentiation is understanding the need to be served.

Tagged as: Brands & Business Strategy

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It makes me nervous when companies claim to be “strategic partners” to their clients.  It is something we should all aspire to, but we should never forget that it is the client’s choice – not the provider’s – whether the relationship is viewed as one of partnership.

The goal of being viewed as a “strategic resource” is what most companies should be aiming for.  Our primary goal should be to be useful to our clients, and let the consumer of our services decide whether our level of usefulness merits the sobriquet of “strategic partner” or not.  Stable business relationships are built on the principle of value exchange.  It is only when relationships becomes asymmetric (either because there is a mismatch between the benefits received and the price paid, or because one party feels they are taken for granted and/or held captive) that the profits made by one party are regarded as unfair.  They are regarded as the product of exploitation, not partnership.

So let’s worry less about the social dimension of partnership (“do you respect me?”) and let’s focus on the functional dimension of partnership (“am I useful to you?”).  This will make it apparent why being viewed as a “strategic resource” is the  basis for an stable, mutually beneficial relationship, whether that relationship is called a “partnership” or not.

Tagged as: Brands & Business Strategy

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A surprising number of marketers are unable to articulate the difference between a positioning statement and a value proposition.  This is worrying, since the core of marketing is the understanding of customer value.

A positioning statement is what it says – a statement that positions the company.  A value proposition is the articulation of a specific promise of value to a specific audience.  If you do not have a clear sense of who you are trying to communicate with, then the chances are that you have written a positioning statement, not a value proposition.

The distinction is important because customers are not interested in companies per se – they are interested in what companies can do for them.   Unless customers get a clear sense of “what’s in it for me?” they tune out the messaging.

It is hard for companies to be disciplined about creating value propositions rather than positioning statements.  First, because there is a natural tendency to focus on what the company wants to communicate rather than what the customer wants to hear.  Second, because it is hard to make the mental effort to look at things from the customer’s point of view.  Third, because a value proposition forces you to confront that the world is not your target market – there are different segments that you need to focus on, and develop specific messaging for.

At the heart of marketing are two disciplines:

1. Segmentation – identifying those segments of the market for whom the company can deliver a distinctive level of value
2. Value proposition – defining a compelling statement of “what’s in it for you” for each of those segments

Tagged as: Brands & Business Strategy, Value Proposition

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The business press has been full of commentary over the demise of Kodak.  Probably the most trenchant observation was the one voiced by The Economist (January 18 edition - economist.com/node/21542796) about the fallacy of “competing through one’s marketing rather than taking the harder route of developing new products and businesses.”

The moral for marketing is that a brand can only be as strong as the underlying business that it supports.  The mandate for marketing is therefore to be responsible for ensuring that the offerings and service of the company are focused on the hard task of ensuring the delivery of differentiated levels of customer value, not just differentiated communications.

That is why it is so depressing to hear Jeff Hayzlett, the CMO of Kodak until last year, describe himself as “a global business celebrity” and ” a leading business expert” – if he really was such, then the company of which he was until recently a member of the executive would not be in Chapter 11.

I have no problem with marketers like Hayzlett claiming to be communications experts.  What I have a problem with is them claiming to be “business experts” when their contribution is limited to communications.  It is this fallacy that “marketing communications alone are enough to drive business success” that lies behind the folly of brand as a separate asset on the balance sheet – the misguided notion that the brand exists in isolation from the capabilities, culture and products/services that gives the brand meaning to customers.

A true business CMO like Beth Comstock at GE recognizes that the CMO’s role encompasses ALL of the dimensions of the business that impact the customer experience.  She demonstrates as keen an interest in the innovation and service delivery of GE as she does in its communications.  She recognizes that the GE brand is better thought of as multiplier on the performance of the business.

The sooner that marketers accept that their (thankless) role is to champion all aspects of customer value, not just communications, the better chance we will have of avoiding the depressing spectacle of once-great companies declining into customer obsolescence.

Tagged as: Brands & Business Strategy, Customer Value, Measure Value

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I used to believe that Marketing, Finance and Accounting inhabited different universes and spoke incompatible languages. But the topic of Brand Equity has convinced me that these worlds are actually aligned.

Each discipline recognizes that the goodwill that a company/product enjoys with customers is a form of economic asset.  In Accounting, the focus is on the reporting of that asset; in Finance, the focus is on exploiting the value of that asset; and in Marketing, the focus is on the creation of the asset.

It is therefore appropriate that the each discipline has its own definition of Brand Equity that reflects its particular interest. This definition broadens from the trademark (recognized by accounting), to brand-induced customer behavior (recognized by Finance), to the potential for value due to brand preference (recognized by Marketing).

Rather than being incompatible, these definitions represent different points on a single spectrum – seeing things from this perspective provides a firm basis for the effective collaboration between the three disciplines.

It is inevitable that Marketing’s definition ill be broader because it focuses on the potential for value – whereas Finance and Accounting both require the realization of cash flow.

Tagged as: Brand Equity, Brands & Business Strategy, Create Value

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Natalie Mizik of the Kenan-Flagler Business School at UNC is putting together a conference next April that takes a multi-disciplinary approach to branding.  Hallelujah!  This is exactly the kind of broad thinking that marketing needs.

Her conference will include academics and practitioners that deal with brands from the accounting, business, legal, marketing and business perspectives.  I am very optimistic about the prospects for some innovative thinking coming out of an event that brings together so many different viewpoints on branding.  I expect that the event will be something of a “reality check” for marketers to understand how their discipline is viewed from outside – and will encourage them to develop more effective ways to communicate the strategic contribution of brands.  The current obsession with ROI and brand valuation does not seem to be addressing the root cause of the problem – namely the lack of comprehension about the business benefits that marketing delivers.

I am particularly interested in learning about the accounting profession’s latest thinking about brands and intangible assets more broadly.  On the one hand, there is an acceptance that the current approach to “transaction based” balance sheet accounting is not providing the desired insight into the true resource base of a company; but on the other hand, the ongoing financial crisis is not an environment in which anyone is minded to make bold moves.  The whole “mark to market” idea was so good in theory, but proved a bust in practice because it permitted such a high level of subjectivity in valuation.

Tagged as: Brand Valuation, Brands & Business Strategy, Intangible Value, Measure Value

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When I left Wolff Olins in 2006, I truly felt like a misfit because there were so few people within Wolff Olins or the branding community more broadly that were passionate about the business impact of their work.  They cared about the dramatic impact of their work.  And they were focused on delivering dramatic impact, whether that was what the business needed or not.  Given that my interest was primarily in well-run B2B companies that did not need to “re-invent themselves” and therefore would not be well served by a makeover, “misfit” was definitely the right term for me.

The last five years have been incredibly validating in that they have proved that there is a under-served segment of the market – companies with strong finance, science and engineering cultures that would not dream of engaging a “creative” agency because they fear that the work would focus on dramatic, rather than business, impact.  In business, as in life, sometimes it is the small stuff rather than the grand gesture that speaks the loudest.  Frequently, well-run B2b companies do not need to embrace radical change – they just need to provide their customers with the basis for a relationship, not just a transactionship.

I do believe that the “rules of branding” are significantly different for B2C versus B2B companies on this dimension.  For B2C companies, there is a strong correlation between dramatic impact and business impact.  It is rare for a B2C company to have a strategy that calls for less visibility rather than more.  The situation is more nuanced for B2B companies – sometimes visibility is the issue, but more frequently it is the content of the communication that is the issue, rather than its visibility.  In all cases, the focus needs to be on the desired business impact – the degree of drama is merely the means to that end.

Tagged as: Brands & Business Strategy

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One of the concepts that Chris Kenton and I discussed during our presentation at today’s B2B Social Media conference was the tendency to over-estimate the short-term impact of a new technology, and to under-estimate its long-term impact (a phenomenon formally known as “macro myopia”).

The hypothesis that we put forward was that the capacity for peer-to-peer communication had dislodged companies from the center of their customers’ universes.  Now that web 2.0 has enabled the creation of communities centered on common interests, companies have been relegated to the status of planets revolving around the true center of the customer’s universe – their specific topic of interest.
Our argument was that the strategic significance of social media lay in its ability to inform companies’ understanding of this new universe.  Just as companies were slow to understand the longer term implications of TQM (“what do you do when everyone’s products are of high quality?”), so we believe that companies may be slow to understand the implications of social media (“what do you do when customers no longer think of you as being the best source of information about your own products and services?”).

Tagged as: Brands & Business Strategy, Create Value

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I was privileged to present today with Chris Kenton of SocialRep at the B2B Social Media Conference in Philly.  Our topic was “The CEO Sell:  Social Media and Business Strategy” – how social media can be used to inform CEO-level business decisions.

The core argument we put forward was that the focus on the short-term lead generation aspects of social media was drowning out the story about how social media research could provide information relevant to three topics that were on the CEO’s agenda:

• Effective marketplace strategies
• Corporate reputation & thought leadership
• Talent management & internal culture

Chris did a great job of illustrating via case studies how social media research had enabled better decision making in each of these three areas – whether through the identification of new segments (Toyota); definition of new topics for thought leadership (Sun); or more effective attraction of appropriate talent (Morgan Stanley).

Feedback was very positive.  I think we were able to give conference participants an interesting story to tell when they were challenged to defend whether social media was relevant in a B2B environment, and had a contribution to make to the long-term success of the business.

Tagged as: Brands & Business Strategy

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One question that comes up regularly during merger discussions is “which brand should we pick?”

There is no simple answer because, depending on the circumstances, the right answer may be either, both or neither. The only hard and fast rule is that the post merger branding should be whatever enables the company to maximize its delivery of customer value. When one of the merging brands is clearly weaker, this may mean migrating to the stronger brand (irrespective of whether it was the smaller or larger one prior to the merger) because this will be perceived as an “upgrade” for the customers of the weaker brand.  Many people believe that AT&T Wireless should have adopted the Cingular brand for this very reason.

When both brands enjoy high levels of customer affection and loyalty, it may mean keeping both brands as product brands (even if a single brand is selected at the corporate level) so as to maintain the customer equity.  When the oil and gas majors merge (think Exxon Mobil or Chevron Texaco or Conoco Phillips), then maintain both brands at the retail level.

When the message is “the best of both worlds”, it is appropriate to merge the two brands (as United and Continental are doing) to support the perception that the merger is delivering increased value to customers.

When the story is “complete transformation of the customer experience” then it is appropriate to consider a new brand entirely.  Think Verizon.

The important point to note is that some of these strategies involve higher cost – and that is OK so long as the higher cost is justified by the increased/maintained levels of customer equity. This is the point that the finance types tend to miss – they are obsessed with reducing costs, and may forget that there is such a thing as “good costs” (those that support an increased level of revenue and profit).

The unique mission of marketing/branding is to generate upside potential for the business by creating the brand portfolio that will enable the merged company to maximize its share of the economic value pool of the industry.  Sometimes this will result in deliberately selecting a strategy of higher costs (such as maintaining two brands) because that is the only way to enable higher revenues and profits to be earned.

The reason why most mergers destroy value is not because they did not achieve their cost savings – it is because they failed to maintain their revenue growth (i.e. they lost customers).  Marketing should demand a seat at the merger table in order to ensure that this perspective of customer equity is appropriately represented.

Tagged as: Brand Equity, Brands & Business Strategy, Customer Value, Merger Branding

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I am in the midst of a major program of customer interviews focused on uncovering the full spectrum of areas in which my client (a significant provider of B2B services) delivers value to its customers.
We are supplementing the formal interview process with some social media mining so as to get a more complete portrait of what customers care about – as evidenced by the range of issues around which substantial online communities have formed.
I alternate between finding social media completely exasperating (due to the huge volume of utterly inconsequential information that is exchanged) and completely exhilarating (due to the occasional nugget of profound insight that is buried deep in some discussion thread).
It is certainly true of social media that “you have to kiss a lot of frogs before you meet your prince” but the task is greatly simplified by the very powerful analytical tools that allow you to sift through inconceivably large volumes of data in order to identify the signal in the noise. Our recent two-year assignment to “map the social media landscape” as it relates to the topic of marketing finance was a great learning exercise on how to use social media – and what kinds of filtering and clustering techniques you need to have in place – to understand a multi-faceted topic.
Social media analysis is still in its infancy but I am convinced that it is as significant to B2B businesses as the internet itself. The real story of social media is not really about the B2C “social CRM” stories that are capturing the headlines at the moment – it is about the ability of businesses to understand the market and social context in which they exist, and to act as valued members in the communities whose needs they serve. Just as all the talk about the internet in the late 1990s focused on the consumer applications of the web while the real action was taking place in the electronic interchange of B2B data, so now the press is focusing on the B2C stories while the more fundamental and durable change is occurring in the B2B arena.

Tagged as: Brands & Business Strategy, Create Value, Customer Value

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Clients often ask me to contrast “marketing” and “branding” because they are confused about whether they are different, or whether one is part of the other, or whether both are part of something bigger – and whether either of them really matter.

When the client is in corporate marketing, “reputation” also gets thrown into the mix as another term that is increasingly widely used as the umbrella term for whatever combination of externally-facing activities the company is engaged in.

I have found that a productive way at getting to the underlying issue behind the question is to focus on the three big questions that a company needs to ask:

1. Who is my target customer?
2. What is my value proposition?
3. Why should he/she prefer to do business with us?

If you have good answers to all three of these questions, and a strategy for executing against them then, trust me, your marketing/branding/reputation is fine.

Tagged as: Brand Valuation, Brands & Business Strategy, Value Proposition

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I have been pleasantly surprised by the number of times our paper “The Value Implications of Corporate Branding in Mergers” has already been downloaded from the MSI and SSRN sites.  And, as best I can tell, the interest in the paper comes from both marketing and finance professionals.

The paper does seem to suggest that there is merit in the belief that human factors play a significant role in the post merger performance of companies.  Put that bluntly, it sounds intuitively obvious – but this hypothesis about the importance of the human dimension of business has been very hard to substantiate in a scientifically convincing way.

Our research falls short of proving the impact of corporate brand strategy on business performance or even identifying the mechanism of impact.  All we have done is to document that certain forms of brand strategy (the ones that preserve elements of the two merging brands) are associated with better investor response both at the time of the merger, and in the three years post merger.  We are not able to say whether this reflects a direct impact of the brand strategy on the strength of the company’s franchise with customers and employees (we did not measure this directly), or an indirect impact (that is, the branding choice is important only as a signal of management strategy).

My sincere belief is that the paper will encourage other researchers to adopt an external resource perspective on mergers – that is, to regard mergers less as an exercise in how to buy market share while eliminating costs, and more as an exercise in extending and deepening the merging companies’ equity with their customers and employees.

Tagged as: Brands & Business Strategy, Merger Branding

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Over the past 18 months, I have periodically reported on progress on some fascinating research that I have been conducting with Natalie Mizik and Isaac Dinner of the Graduate School of Business at Columbia into the value impact of branding on post-merger financial performance.

I am delighted to report that the results have now been published as Marketing Science Institute Working Paper 10-119 and the full paper can be accessed at:

http://www.msi.org/publications/publication.cfm?pub=1815

Our results are exciting because they suggest that corporate brand strategy may be a material factor in determining the post-merger financial performance of companies.  If this is true, then companies should regard the choice of corporate branding as a critical element of their strategy for maintaining the strength of their franchise with customers and employees, instead of treating it as a matter of corporate ego or horse trading.

Our starting observation was that one of the perennial conundrums of business strategy is the continuing popularity of mergers and acquisitions as tools of business growth despite the well documented evidence that, on average, mergers destroy value.  Researchers have failed to isolate the factors that explain why certain mergers succeed where others fail – in reviewing the various theories and empirical evidence, King, Dalton, Daily and Colvin concluded that “despite decades of research, what impacts the financial performance of firms engaging in M&A remains largely unexplained” and that “researchers simply may not be looking at the ‘right’ set of variables as predictors of post-acquisition performance” (see pages 197/198 of their 2004 paper “Meta-Analyses of Post-Acquisition Performance: Indications of Unidentified Moderators” in the Strategic Management Journal).

Our hypothesis was that corporate brand strategy was a variable that had hitherto been overlooked.  If the reason why most mergers fail to create value is not the failure to trim costs sufficiently but rather the shortfall in revenue growth (as reported in the May 2008 edition of HBR based on an analysis of 270 mergers by Rothenbuecher and Schrottke), then a critical factor in post-merger success was the maintenance of the health of the customer and employee franchise of the merger company.

Could it be that certain forms of corporate brand strategy were more effective in maintaining the strength of the external and internal franchise than others?  It seemed intuitive reasonable that a strategy of “pure acquisition” (under which one of the two merging brands simply disappears) was likely to result in greater attrition of customers and employees.  On the other hand, the additional costs of maintaining multiple brands might overwhelm the positive impact that this strategy had on customer and employee attrition.

It would be fascinating to see whether the data indicated that there was evidence of the consistent superiority of one approach over the others….

Here’s how the abstract of the published MSI paper summarizes the results:

“Most academic research on mergers has focused on the role and impact of the internal resources of the merging organizations on post-merger financial performance. In this report, Natalie Mizik, Jonathan Knowles, and Isaac Dinner take an external resource perspective and explore the value relevance of corporate branding’s role in communicating context- appropriate positioning and messaging to customers, employees, and investors. They investigate whether branding-related information is priced into merger valuations, both at announcement and over time.

Using a sample of 216 large mergers undertaken during 1997—2006, they classify merger transactions into three groupings according to the post-merger corporate branding: acquisition (the identity of one of the merging companies is discarded and it is rebranded with the other firm’s name and symbol), business-as-usual (both firms continue to operate under their own corporate names and symbols), and fusion (elements of both corporate brands are maintained in the new brand). They undertake event study and time-varying calendar-time portfolio analyses to assess potential differences in the value implications of corporate branding in mergers.

They find significant differences in the immediate market reaction to the merger announcements and significant differences in the post-merger performance across the three corporate branding types.

Firms using the more expedient and cheaper acquisition and business-as- usual branding strategies underperform firms that choose the more sophisticated and expensive fusion branding. Surprisingly, the market is better able to recognize the negative consequences of acquisition- branded mergers early on: the valuation of these firms is adjusted immediately at the time of the merger announcement, and there are no significant future-term adjustments following the merger completion. Only the business-as-usual branding mergers experience a significant post-merger negative adjustment in valuation: for them, the initial negative reaction to the merger announcement is compounded by further negative adjustment over the ensuing three years. Fusion-branded mergers do not experience negative market reaction at the time of the merger announcement, and the researchers find no systematic negative future-term adjustment in the valuation of these firms.”

Pretty cool finding, no?

Tagged as: Brand Valuation, Brands & Business Strategy, Merger Branding

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Reflecting on the marketing analytics conference last week, I have to admit that I am depressed about the future of Marketing (marketing with a big M) while encouraged by the progress made on the executional aspects of marketing (marketing with a small m).

It is truly wonderful how the traditional “spray and pray” approach to marketing (“try lots of stuff and hope that some of it works”) has given way to a much more disciplined and scientific approach to marketing.  Huge strides have been made over the past 20 years in the areas of segmentation, message salience, value analysis, pricing, media selection, customer behavior and customer lifetime value – to name a few.

It is truly the fulfillment of the dream of efficient marketing operations.  It is no longer a joke to speak about the concept of a “marketing engineer.”

But, at the same time as the focus on the planning and measurement of marketing activity has grown, there appears to have been a decline in the practice of strategic marketing.  The recession of the past two years has provided a disproportionate incentive to focus on efficiency improvements to enable the same level of benefits to be delivered at a lower price.  The search for the discovery of new forms of customer value – for which a higher price can be asked – has been moved to the back burner.

More than ever, the term “marketing” is being understood to refer to a series of short term, operational activities (communications, promotions, couponing, purchase activation).  This is a tragedy in the making.  If marketing becomes just another business discipline whose goal is defined purely in terms of making the sales process (aka the “value capture” process) as efficient as possible, then companies will find out the hard way that a sustainable value proposition requires them to focus equally on “customer value creation” and “value capture.”

Tagged as: Brands & Business Strategy, Customer Value, Marketing Measurement

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I was privileged to present tonight to the Masters in Branding class at the School of Visual Arts.  This is the first year that the program has run, and SVA seems to have attracted a really high quality contingent.

My topic was “The Business Case for Branding” – and my intention was to introduce the group to some of the concepts and frameworks that would enable them to engage in the discussion about the business impact of branding and marketing.  I made no apology that my topic was “spinach” – something they might not like, but which was good for them!

In the event, they were much more receptive to the material than I had expected (no-one does a Masters in Branding because they love numbers).  But just like most finance people will say “I do not have a creative bone in my body” so there was a tendency for this group to lament that “numbers are not my thing.”

As regular readers of this blog will know, I do not believe that anyone is wholly uncreative or innumerate. Sure, we are each left- or right-brain dominant, but we each are able to engage both forms of mental processing.

I am hoping that the image of the scales will stick in the minds of tonight’s class as a reminder of the fact that sustainable business success requires the balancing of customer value and shareholder value – and for that, you need to engage both your creative and your financial skills.

Tagged as: Brands & Business Strategy, Customer Value, Vulcans and Earthlings

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It has been a long time coming – but we are now ready to submit the article on the value relevance of corporate branding strategy during mergers.

In a nutshell, there are two significant findings:

• first, our analysis replicates the common observation that, on average, mergers destroy value (thus suggesting that our sample is representative of the broad universe of mergers)
• second, it identifies factors that are relevant in explaining why certain mergers perform better than others

It is really exciting to demonstrate financially why it is important that companies take account of a broad set of human factors when undertaking a merger, rather than focusing simply how to combine the “hard” resources of the two companies.   This type of work truly does “make the business case for branding.”

I will share the details of the analysis once we are ready for publication.

Tagged as: Brands & Business Strategy, Merger Branding

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I was privileged to present to a group of eight senior corporate marketers who together represented over $400 billion in market value.  The topic was “best practices in marketing measurement and valuation.”  We focused primarily on the measurement of brand equity and the uses (and misuses) of brand valuation.

It was a fascinating insight into the state of corporate brand management as practiced at some of the leading B2B companies in the US and Europe. To a person, the members of the group were smart, articulate, credible and… frustrated by the inherent difficulty in proving the contribution that corporate branding makes to the value of their respective businesses.

I hope that I was able to offer up a couple of different approaches for framing the role of corporate branding, and estimating the scale of brand value across different industries.  I shared relevant data from my recent analyses of intangible value and of brand value so as to equip them with some financial parameters to use when engaging with their CFOs.

The interesting thing for me was how clearly the group segmented between those who were in sales-dominant cultures, and those who were in companies in which there was an inherent belief in the importance of relationships, not just sales.  In the first culture, there is no mileage to be had in trying to argue about the importance of branding other than as a means to super-charge the sales funnel.  In the second culture, there is a readiness to ackowledge the importance of the brand, but still the challenge of identifying the metrics that best capture the strength of the brand franchise AND how effectively that potential is being translated into sales.

Tagged as: Brand Valuation, Brands & Business Strategy, Marketing Measurement

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The October 2010 McKinsey Quarterly contains an interesting update on the research that McKinsey has been doing into the nature of what they call “centered leadership.”

What was originally scoped as research into the characteristics of successful female CEOs has now been extended to cover male CEOs.  Apparently the findings are robust across both genders – namely, that there are 5 qualities that are strongly predictive of a CEO’s level of professional and personal satisfaction.

The five qualities are:

1. meaning – putting your strengths to work in the service of a purpose that inspires you
2. positive framing – having an optimistic view of challenges
3. connecting – building strong communities
4. engaging – pursuing opportunities, despite the risks
5. energizing – finding ways to maintain your energy

Meaning has the strongest individual correlation with satisfaction (in fact, it is five times more influential than either the #2 or #3 dimensions, energizing and engaging); but the overall level of satisfaction is most strongly influenced by the extent to which the individual has mastered multiple qualities.

My take on this is that branding is a strong tool for CEOs.  It offers the vehicle for communicating meaning, creating community, and engaging the organization to act.

Tagged as: Brands & Business Strategy

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Tony Hayward is another worthy recipient of the “Vulcan” award for demonstrating behavior that is justifiable on a narrowly functional basis, but utterly unjustifiable on a human basis.

Previous recipients include Rick Wagoner (of “Why don’t I take a private plane to Washington to ask for a Government bail-out?” fame) and Bob Nardelli (of “Why don’t we replace those skilled people in the Home Depot aisles by cheaper people with no discernable DIY experience?” fame).  Both demonstrated a stunning inability to see their actions through a human lens.  Saving time and money was all that mattered to them.

Tony Hayward showed the same inability to appreciate the human significance of his behavior.  As CEO of BP, he served as the focal point for everyone’s attention and expectations that BP would fix the problems that it had caused in the Gulf of Mexico.  Until such time as they did so, Tony Hayward was the symbol of BP and Tony Hayward the man did not matter.

People had zero interest in hearing him whine about how “he wants his life back” and were outraged by his decision to attend the “Round the Island” yacht race in the UK while oil was still flowing freely into the Gulf of Mexico.  It was not that people were unsympathetic to the needs of Tony Hayward the man – it was just that, until the well was plugged, Tony Hayward was the embodiment of BP.

Vulcans are blind to the human significance of their actions.  Earthlings understand that CEOs are always seen as more than just men (or women) – they are viewed as the embodiment of their organizations.  Tony Hayward’s failure to appreciate this, and readiness to favor the needs of Tony Hayward the man over the obligations for Tony Hayward the symbol of BP, earns him a “Vulcan” award.

Tagged as: Brands & Business Strategy, Vulcans and Earthlings

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This post, jointly authored by Jonathan and Rich, was published on the HBR blog under the title “The Hazard of Having an Accidental Brand” on July 19:

For every Intel that intentionally crafts its trajectory as a brand rather than as a mere product, there are dozens of brands such as LYCRA, KONI, and Dell that have developed a deep resonance with customers more by accident than strategic intent. To judge by their websites and communications, the owners of these brands are well aware of what their products do for customers, but unaware of what they mean to customers.

These brands typically belong to engineering- and technology-based companies that have relentlessly pursued a strategy of delivering high quality, reliable, science-rich products. The companies are proud of their technological heritage and proudly assert their preference for substance over style. When we’ve asked executives at these firms what makes the company and its products special, they invariably list the ways in which their offerings are functionally superior to their competitors’. For them, brand strength begins and ends with better science or engineering, and they are inevitably offended when we suggest that they have a great product but an accidental brand—one whose emotional appeal to customers is clear to everyone except the executives themselves.

The core of the problem is the widespread belief in these companies that emotion is the enemy of reason. The assumption often is that an emotional bond with customers can only come at the expense of functional excellence, rather than as the result of it. It’s often news to these executives that a strong brand needs to be 100% rational and 100% emotional in its appeal, and that there needn’t be a trade-off between the two. And it’s often a surprise to them that performance is less of a differentiator than they imagine: Even in sophisticated B2B contexts, customers are too starved for time, uninformed, or uninterested to make an accurate judgment about which in a group of competing brands delivers superior functionality. TQM and Six Sigma have so narrowed the performance differential between leading suppliers of most products and services that the effort of uncovering the true functional differences between them outweighs the benefit.

Our advice to companies with accidental brands is to shift their emphasis from describing what the product does to communicating to customers what the product does for them. Microsoft and Hyundai have both recently embarked on such a transition.

Microsoft’s Window’s Division, long criticized for developing hard-to-use, over-engineered offerings (think Vista), is currently undergoing a radical and highly successful reboot of their brand. The “I’m a PC and Windows 7 was my idea” campaign showcases the company’s new-found commitment to building meaningful relationships with customers. And it appears to be delivering results. As of June 2010 Microsoft had sold 100 million licenses for Windows 7, and the company reports that 12% of all PCs worldwide are running the software, making it the fastest-selling operating system in history.

For Hyundai, the game-changing decision came in early 2009 when the company dramatically shifted its brand focus from the car to the customer. The now well-known Hyundai Assurance campaign resonated with customers worried about job loss and economic security. The central message was not that the company makes great cars (although Hyundai models continue to climb near the top of the quality rankings) but rather that Hyundai cared about its customers’ well-being in the economic recession, offering to let them walk away from their loan or lease and return the car if they became unemployed or suffered other “life-altering events.” In 2009, the company’s sales increased 8% while the industry declined 21%, and its share price tripled. Thus far, the Korean-automaker’s 2010 sales are up nearly 30% from the same period last year.

The toughest stretch goal for management of engineering- and technology-based companies is to understand the human and emotional aspects of their brands. Company leaders should ask the question “Do our executives truly understand—and can each of them articulate—the nature of the customer experience on which the growth and profitability of the business depends?” The response to this question provides insight into another key question: do you have an accidental brand?

Tagged as: Brands & Business Strategy, Create Value, Customer Value, Vulcans and Earthlings

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The goal of any business is to achieve a monopoly – to become the uncontested supplier of products/services to its chosen audience.  Monopolies are very profitable.

What is often overlooked is that there are “good” monopolies and “bad” monopolies.  “Good” monopolies exist where there is actually an open and competitive market for a given product or service, but a single company has developed such a compelling value proposition that it enjoys an effective monopoly.  Think Google in search, or Apple in MP3 players.  Both have plenty of competitors but each has so delighted their customers that it is almost as if they have a monopoly.

“Good” monopolies generally come about through superior technology or a superior service (think Zappos).  They are not monopolies in the legal sense of the word (the absence of competition) as customers have the choice of buying a competitive product or service – but choose not to.  The “monopoly” is the product of a domination of customers’ preferences.

“Bad” monopolies are when the customer has no choice (think NYC apartment building with a single cable provider or airline on an uncontested route).  The problem with “bad” monopolies is that the company can ignore the preferences of its customers because it knows that they are captive (think cell phone service contracts).  Even if the company does not actively abuse this monopoly, customers will resent the asymmetry in their relationship with the company and the fact that they have no choice.

That is why it is really hard for a company with a “bad” monopoly to enjoy a high level of brand equity.  Brand equity is about customer preference – and it is hard to have preference where there is no choice.

But the simple truth for most businesses is that it is cheaper to develop ways to make customers captive than it is to find ways to continuously delight them (and so maintain a monopoly on their preference).  This is a significant source of tension between marketing and finance.  Marketing wishes to achieve a “good” monopoly (by making sure that customers do not want to leave) but finance knows that, certainly in the short run, it is much more profitable to focus on creating a “bad” monopoly (by making sure that customers cannot leave).

Tagged as: Brands & Business Strategy, Business Value, Customer Value

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I have just completed an extensive piece of online research to see what has been written on the topic of brand and reputation to see what additional insights were available to supplement the ideas in Rich and my 2008 Sloan Management piece (which I summarized in my earlier “brand vs. reputation” post).

The short answer is a fair amount has been written – but very little of it is worth reading.  I was shocked to see what a big business “reputation management” has become, with a host of web 2.0 social media scanning companies vying for attention against a phalanx of PR companies.  Most of these companies use “brand” and “reputation” as if they were synonyms – which, because they are approaching the topic from an entirely defensive stance, is probably OK.

By contrast, I found there was a lot of wisdom to be gained from reviewing the most famous quotations about reputation.  These illustrated a number of important points:

• “The purest treasure mortal times afford is spotless reputation” (Shakespeare)
• Reputation is built on action not intention
• Reputation takes a long time to acquire but can be lost in an instant
• It is worse to lose a good reputation than never to have had one
• Reputation often rests not on your ability to do what you say, but rather on the ability to do what people expect
• Repuation is what people think of us, character is who we are

To the last point, my favorite advice came from Socrates 2,500 years ago who said “The way to gain a good reputation is to endeavor to be what you desire to appear.”

Tagged as: Brands & Business Strategy, Business Value, Create Value

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The practice of marketing is undergoing a radical transformation as a result of web 2.0 technologies.  Peer-to-peer connectivity (a.k.a. social networking) is rendering obsolete the long-standing metaphor for marketing as military strategy with its bellicose language of “campaigns,” “targets” and “captive” audiences.  In its place is emerging a new metaphor for marketing as participation in a series of customer communities, with new metrics such as “engagement” and “advocacy.”

Note that I do not believe that this changes the purpose of marketing – it is still about creating, communicating and delivering customer value – but it certainly changes the practice of marketing.

In a world of highly controlled broadcast media and largely passive consumers, Sun Tzu’s “Art of War” was rightly viewed as a source of valuable insight into how marketing strategies could be planned and executed.  In a web 2.0 world of fragmented media and peer-to-peer communication, marketing is less like a battlefield and more like a cocktail party – the people you are interested in speaking with are clustered in self-selected groups and are already communicating with one another.  Your effectiveness in this new environment depends on how well you contribute to the conversation, not by your attempts to control or dominate the discussion.

Engaging with a more fragmented, more informed, more interconnected set of audiences requires a new mindset and a strategy of “markicipation” (a strategic blend of marketing and relevant participation).  It involves recognizing that, for the majority of companies, the focus of the community is the customer’s need, not your brand.  While a few high engagement brands are able to form communities for which they serve as the central point, I believe these are the exception.  For most brands, the wiser strategy is to define the customer need to which their brand is a potential solution and focus on making a meaningful contribution to the vibrancy of those communities.

Tagged as: Brands & Business Strategy, Create Value

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Interesting blog post on the HBR site on Friday (“Why Betterness is Good Business”) that summarizes the evidence for the correlation between corporate social responsibility (CSR) and financial performance:

http://blogs.hbr.org/haque/2010/05/why_betterness_is_good_busines.html

As the comments on the post make clear, none of the studies cited proves the causality in the relationship.  The post acknowledges a study that suggests that the financial outperformance by social funds disappears once their results are benchmarked against their specific universe of investment opportunities (i.e. excluding the “sin” industries) rather than the overall market.

But I still believe that there is an interesting hypothesis here – namely that companies that are better at anticipating future expectations of business are likely to perform better.

What makes this topic quite complex is that motives matter less than actions – companies may be engaging in CSR out of deep ethical conviction (such as Patagonia) or simply because they think it is a wise economic decision (I think that this is what truly motivates GE).  The important thing is that CSR is a core part of their operating philosophy.

For a few companies (such as Seventh Generation), CSR may be the very basis of their brand. But for most companies, CSR is better thought of as a core component of reputation.

For this reason I think it will be hard ever to prove a linkage between CSR (“doing good”) and financial outperformance (“doing well”).  Reputation is about meeting the market expectations of what is means to be a responsible business.  In efficient capital markets, there is no “alpha” in meeting market expectations but there is a big downside to failing to do so.  “Doing well” (i.e. generating excess value) will always be a function of delivering on customer expectations of superior value – and for most companies, CSR will only be part of that.

Tagged as: Brands & Business Strategy, Create Value, Marketing Finance

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There is significant confusion among the business executives about whether “brand” and “reputation” are the same thing and, if they are not, what is the difference is between brand management and reputation management (that heavily promoted new offering from the PR community).
The confusion arises because the term “brand” is used very loosely and so has come to encompass everything from visual identity, to advertising, to culture and, yes, reputation.
But the true nature of a brand is as a customer-centric concept that focuses on what value the product (or service or company) promises to deliver to the customer. Brands are therefore about relevance, difference and added value to the customer.
By contrast, reputation is a company-centric concept that focuses on the credibility and respect that an organization enjoys among a broad set of constituencies. Reputation is therefore about legitimacy and the perception of the company as a responsible employer and valued member of the community.
While it is true that consumer activism and social media are causing the distinction between the two concepts to become increasingly blurry (Nike found out that consumers’ love of their brand did not mean that they were indifferent to the behavior of the company behind the brand), it is a mistake to assume that brand and reputation are the same thing.
A strong reputation gets you into the consideration set but does not provide a compelling reason to select you over a competitor with an equally laudable reputation. To be preferred by customers, you need to remember that the final decision is about them, not about you. Their purchase decision is based on what they perceive you can do for them specifically, not whether you are a wonderfully ethical employer who recycles their rainwater. It is brand, not reputation, that communicates why you are uniquely positioned to deliver on the customer’s need.

Tagged as: Brands & Business Strategy, Create Value, Customer Value

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I am delighted to see that United and Continental have adopted my favorite brand strategy for mergers – combining the name of the acquirer with the visual identity of the target. It is a smart strategy because it communicates that there is no “winner and loser” in the merger – both sides are recognized for the contribution they bring. It is a powerful way of ensuring the continued loyalty of the customers and employees of both companies.
Given its power in maintaining the equity embedded in both brands, it is surprising to me that this strategy (number 7 in our lexicon) is not more widely employed. Boeing used it when it combined the McDonald Douglas symbol with the Boeing name. UBS paired the cross keys symbol with the UBS name when it merged with Swiss Bank Corporation.
Another favorite of mine is when the merger involves pairing the name of the acquirer with a new symbol (strategy 4 in our lexicon). This is what Sprint did when it merged with Nextel, and what BP did after the merger with Amoco. The message is clearly that “this is not just an acquisition – it is a transformation.”

Tagged as: Brands & Business Strategy, Merger Branding

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Some weeks ago, I wrote about how sustainable business success is founded on achieving a balance between customer value and shareholder value.  I noted that this simple maxim is actually very hard to achieve on a consistent basis.  Companies are constantly veering too far in the direction of customer value by delighting their customers with high quality products and services but failing to earn enough to cover their economic costs; or in the direction of shareholder value by delighting their investors but leaving customers feeling fleeced – even endangered.

I believe that Toyota is going to be used for years to come as the textbook case of a company that strayed too far in the direction of shareholder value.  The current edition of BusinessWeek contains a fascinating account about how the “suits” took over at Toyota and obsessively pursued the goal of cost reduction, blind the fact that some of the costs were “good costs” (they were directly related to customer benefits) rather than inefficiency.

Jim Press, Toyota’s senior US executive, put it very bluntly “the root cause of the problem is that the company was hijacked by… financially oriented pirates.”

As Toyota’s experience shows, it can take years for the imbalance in a business strategy to become evident in the marketplace (especially if, like Toyota, you are good at fending off investigations by the NHTSA).  But eventually the fact that you have debased your customer value offer becomes impossible to ignore.

Tagged as: Brands & Business Strategy, Create Value, Customer Value

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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: Brands & Business Strategy, Value Proposition

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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: Brands & Business Strategy, Marketing Finance

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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: Brands & Business Strategy, Create Value, Customer Value

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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.

Tagged as: Brands & Business Strategy, Marketing Finance

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My previous post on the topic of “transactionships” has clearly struck a chord based on the number of calls and emails that I have received.  The feedback has revealed a fundamental schism in attitudes:

• Some argue that businesses are purely commercial enterprises with which it is impossible to have a true “relationship” – the best you can hope for is to be efficiently targeted and processed
• Some believe that businesses exist in the context of communities and, in order to retain their legitimacy, must develop the capacity for relationships rather than just transactionships

These points echo my earlier post about the “balancing act” of business – that you need to find a sustainable balance between creating customer value (a.k.a “being a valued contributor to the community”) and shareholder value (a.k.a “capturing enough of the customer value to keep your investors happy”).   A cynic might argue that, for a business, a “relationship” is the way in which to maximize the value of a transactionship over time.  He/she would say that businesses need to demonstrate just enough concern about diversity, the environment, and the other components of corporate social responsibility in order to keep customers transacting with them.

The proof of this particular pudding is beautifully illustrated by the current practice of ”green washing”.  Businesses with even the most dubious track record of environmental performance are falling over themselves to stress their “green” credentials.  Their motive is transparent – while a few may have genuinely had a “Damascus road” epiphany about the virtues of sustainability, the majority are just motivated by the desire to keep their customers transacting with them.

So – is it realistic to expect businesses to have real “relationships” ?  And why would they want to do so?

I have some thoughts to share – but I would welcome your input before doing so.  Keep comments coming to me at j.knowles@type2consulting.com

Tagged as: Brands & Business Strategy, Create Value, Customer Value, Vulcans and Earthlings

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I have been having a fascinating dialogue over the past few months with Chris Kenton, the founder of SocialRep and former BusinessWeek journalist, about the strategic significance of social media.

One issue we have debated at length is the relationship of social media to CRM (customer relationship management), especially as a number of companies (including Oracle) are now actively describing their social media technologies as “Social CRM.”

I observed to Chris that CRM is a misnomer.  Only a Vulcan would refer to a system that only captures information on the commercial interactions between two parties as a “relationship” management system.  It should be called CTM (customer transaction management) because what the technology enables is a “transactionship.”   A relationship requires understanding who a person is, not just what a person does.

This struck a chord with Chris – he shared the results of some research he led while at the CMO Council that suggested that marketers believed that CRM has contributed to a decline in their “customer intimacy”.  They were spending more time analyzing customer behavior than actually speaking with them!

Both Chris and I are huge fans of CRM.  We believe that CRM technology has enabled companies’ ability to serve their customers better (through improved information) and more efficiently (through reduced cost).  Personally, I thank the CRM Gods every time that a company “recognizes” me when I call their call center or access their website because I know that I will not have to waste my time reminding them of my preferences and recent purchases.

We also value the impact that CRM has had on marketing – Chris is eloquent on the subject of how CRM has enabled “scientific marketing” to replace the “just go with your gut” approach so celebrated in “Mad Men.”

But, as a customer and an Earthling, I want to deal with companies that offer a relationship, not just a transactionship.

Tagged as: Brands & Business Strategy, Create Value, Customer Value

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The core theme of my presentation to the Thunderbird MBA Winterim in New York yesterday was that business success is a balancing act.

Specifically, sustainable business success is founded on achieving a balance between customer value and shareholder value.  Until you create customer value, there is no opportunity to create shareholder value (except where you have monopoly or the ability to extract revenue through force).  The goal of business is therefore to create strategies that allow you to deliver products and services for which customers are prepared to pay a price that exceeds your economic costs.

That simple maxim is actually very hard to achieve on a consistent basis.  Companies are constantly veering too far in the direction of customer value or shareholder value.  They are either continuing to delight their customers with high quality products and services but failing to earn enough to cover their economic costs (which include a charge for the capital they employ); or they are delighting their investors but leaving customers feeling fleeced.

The best advice I could give the participants in the Winterim (and clients for whom I work) is to develop the discipline of explicitly reviewing things from a marketing and a finance perspective.  That is the best way that I know to ensure that businesses can maintain their franchise with their customers while simultaneously ensuring that they remain in business.

Tagged as: Brands & Business Strategy, Create Value, Customer Value

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I had the privilege of giving the 3 hour concluding presentation to the Thunderbird MBA Winterim in New York today.  My theme was “Does Marketing Matter?” – a deliberate provocation to a group just about to start their job search for careers in marketing.

My point was a serious one:  they face a brutal recruitment environment and will need to distinguish themselves as potential recruits.  I suggested that they can do so by demonstrating their ability for integrative thinking – specifically by their ability to integrate the marketing and finance perspectives on business.

One aspect of our discussion was how to think about the resources that generate economic value for the business.  I urged them to think about this issue from both a marketing perspective (which focuses on the company’s understanding of its markets, and the quality of its franchise with customers) AND a financial perspective (which focuses on the efficiency of its business model, and the quality of the tangible and intangible resources it controls).

A particularly insightful part of the discussion centred on the divergence between the book value and the market value of companies, and whether the currently recognized forms of tangible and intangible asset (see my previous post) represented a comprehensive list of assets.  The concept of “human capital” was the focus of the debate.

To a marketer, it is patently obvious that one of the key assets of a business is the ingenuity of a company’s employees.  This is the source of their ability to craft new and valued sources of customer value.

To an accountant, this is problematic since an “asset” needs to be legally owned and controlled by the company.  Now that slavery has been abolished, companies do not own their employees (even though employees may still feel that way at times!).   Legal ownership is limited to the output generated by employees, whether in terms of physical product or intellectual property.

This highlights one reason why, even when we include the five categories of intangible assets sanctioned by the International Accounting Standards Board, the gap between book value and market value of companies will not be completely closed.

Tagged as: Brands & Business Strategy, Business Value, Create Value, Marketing Finance

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I have just come across an old (October 2000) paper by Millward Brown, the research firm, about the determinants of a brand’s elasticity.  It may be nearly 10 years old, but its analysis is evergreen.

As expected, the analysis shows that it is easiest for brands to extend into categories that are functionally similar.  It also shows that the other determinant of successful brand extension is the degree to which the brand’s value proposition transcends purely functional considerations, and the extent to which this augmented “meaning” is relevant in the new category.  Hence the title of their paper “Does your brand mean enough to diversify?”

As noted extensively in this blog, customer value in an Earthling world is driven by more than purely functional considerations.   Customer want answers both to the question “what can you do for me?” and to the question “what can you mean to me?” – being a strong brand means having a compelling answer to both questions.  A Vulcan will select you on the basis of the first alone, but an Earthling will require a compelling answer to both.

The Millward Brown paper illustrates how the answer to the second question also determines the extent to which your “augmented” value proposition could support an extension of your brand into additional areas.

Tagged as: Create Value, Customer Value, Value Proposition, Vulcans and Earthlings

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I am nearing the end of a series of client workshops that will have taken me to 13 locations around the world over the past month.

The thing that has most struck me about the experience is that a corporate culture can be every bit as strong as a national culture, even for a firm that focuses on hiring locally in each market and that has made a number of significant acquisitions.  I have been amazed by the way in which all of the operations that I have visited are united by a set of shared values and culture.

That is not to say that there is not something distinctively French about their French operations, and something distinctively Japanese about their Japanese operations.  These operations clearly manifest their local cultures and customs – but the dominant impression that you take away from meeting them is the similarity of their aspirations and values.

The usual explanation for this phenomenon is that the national operations have become “Americanized” (my client is headquartered in the US).  I believe this is wrong.  I have worked with many American companies that are way more formal and hierarchical than the stereotypical German or Japanese company.  I believe that the truth is that the company has recognized the importance of creating a corporate culture that transcends national culture.

By articulating a way of doing business and demonstrating a set of behaviors that embodies a consistent set of values, the company has created a corporate culture that is the same across the globe, and that is enriched – not threatened – by national “interpretations” of these underlying values.

It is a remarkable thing to behold.

It is also a powerful source of competitive advantage – this commonality of beliefs was a major factor in allowing the company to respond swiftly and effectively to the market meltdown last year, and in facilitating its ability to integrate a number of recent acquisitions.

Tagged as: Brands & Business Strategy, Create Value, Customer Value, Marketing Finance

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One of the struggles in working with senior management groups on complex topics is the danger that the discussion begins to focus narrowly on one specific aspect of the topic on which a number of those present have deep expertise or strong opinions (or both).  It is totally natural that people want to find a way to simplify the complexity of the topic but the risk is that, all of a sudden, a decision about the whole strategy looks like it will be made on the basis of one relatively minor dimension.

I have found that a useful technique for preventing this is to attach an explicit financial value to the individual items on the agenda.  The number represents the additional financial value that could be generated by an insightful group discussion of that topic.  So item 1 “Minutes of the last meeting” will have a modest notional value attached to it but item 3 “Sources of incremental growth” might have a $500 million notional value.

I have found that this approach has two benefits:

• It ensures that the allocation of time in the meeting is in closer proportion to the financial importance of the topic than might otherwise be the case (participants will often cut short an unproductive discussions with the remark ”why are we wasting our time on a topic that has little financial value when there are other, more valuable items yet to discuss?”)
• It ensures that the discussion of a truly important topic is not allowed to hinge on a single, relatively minor aspect – even if there is strong debate about that aspect (participants will make a remark like “we are not going to let a $500mn decision hinge on the choice of stationery supplier”)

I encourage marketers to adopt this technique when presenting to senior leadership teams.  Begin your presentation as follows ”Our first topic – strategic positioning – is potentially a $50mn topic, so we would welcome a detailed discussion.  Our third topic – social media strategy for our holiday sales promotion – has a more modest upside value of $5mn but we would still welcome your input.” I guarantee that jaws will drop and your career prospects will rise…

Tagged as: Brands & Business Strategy, Business Value, Create Value, Marketing Finance

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The ANA has just released its 2009 State of Marketing report, subtitled “The Shift” in deference to Prophet’s sponsorship of the survey and the release of their senior partner’s book “The Shift: The Transformation of Today’s Marketers into Tomorrow’s Growth Leaders.”

The survey report serves as the basis for reiterating the key points from Scott Davis’s book, specifically the  five dimensions of the transformation that marketers need to make in order to make the move from “being merely a sales enabler to being a value driver across the enterprise”  – or, as the book terms it, to becoming a Visionary marketer.

The language may be a bit self aggrandizing but the ideas are good, specifically the core idea about how the influence of marketers is in direct proportion to their contribution to driving the growth agenda of the business.  In finance theory, the value of a business is driven by three things – profit, growth and risk.  Scott Davis is right to get marketers to up their game from just a focus on marketing efficiency (that primarily sees marketing’s contribution in terms of margins and therefore profit) to one that focuses on growth.

This change of mindset is probably the single biggest thing that marketers can do to elevate their impact from the tactical to the strategic.

One critical component for doing so is for marketers to gain a deeper understanding for how the business actually works - my favorite data from the survey was the contrast of the level of cross-functional collaboration by “visionary marketers” vs. their visually-challenged peers.  60% of the visionaries claimed to collaborate closely with finance and 39% with operations vs. figures of 26% and 9% for their myopic peers.

PS The five dimensions on which marketers need to “shift” are:

• From creating marketing strategy to driving business impact
• From controlling your message to galvanizing your network
• From incremental improvements to pervasive innovation
• From managing marketing investments to inspiring marketing excellence
• From an operational focus to a relentless customer focus

Tagged as: Brands & Business Strategy, Business Value, Create Value, Marketing Finance

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I cannot decide whether I think that JC Larreche’s book “The Momentum Effect” is ground breaking – or banal.  Oddly, I feel the same way about Chan Kim and Renee Mauborgne’s “Blue Ocean Strategy.”  As an alumnus of INSEAD, I am proud to see the faculty achieve such recognition but I wish that I was convinced that their books represented a major breakthrough in business thinking.

Both books have achieved an impressive degree of traction in the marketplace based on the same basic insight – namely, that business success is based on understanding the sources of customer value, and on crafting your product/service offering in a way that delivers unique value to customers.  I think Peter Drucker made this observation over 50 years ago.

Kim and Mauborgne phrase the opportunity in terms of “creating uncontested market space” while Larreche talks in terms of “shifting from compensating strategy to momentum strategy”.  I find Larreche’s take on the topic to be more appealing because it is explicit about what companies should stop doing (spending their time pushing products that do not offer compelling customer value) as well as what they should do more of (creating “power offers”).

Net net, I am delighted that the “marketing mindset” is once again being recognized as a powerful source of value creation for business.  To my mind, the fundamental challenge of business is how to create a business culture that places equal value on the insights that come from a “marketing mindset” with the operational efficiencies that comes from a “finance mindset”.

Tagged as: Brands & Business Strategy, Create Value

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This was the title of my presentation today at the town hall of a talented design and branding firm with which I have collaborated on a number of occasions.  Like so many others, they are grappling with the issue of how to respond productively to questions about ROI and the value of their work.

My mandate was simply to talk about the research and analysis I have been doing on a number of topics relevant to the business context and business impact of marketing.  I talked briefly about intangible value, brand valuation, the brand “bonus” and the relationship between brand strategy selection and post-merger financial performance (all topics on which I have shared topline results in this blog).

I hope I provided them with some interesting insights, and some confidence to engage in the discussion about the financial impact of marketing.  At the very least, I left them with a number of financial observations for use in their conversations with clients:

• Tangible book value represents only 21% of the value of US companies, and 33% of the value of Canadian companies
• Brand value represents an average of 15% of market value – but varies enormously by sector (ranging from less than 5% in energy and basic materials to over 40% in consumer goods)
• Strongly branded companies seemed to benefit from a cushion of 3 to 5% during the market meltdown of late 2008/early 2009
• In the two years following a merger, companies that used the more sophisticated forms of corporate brand outperformed those that used the two “expedient” forms of brand strategy by a margin of 5 to 10%

My parting advice to them was to use any request for ROI or brand value as an opportunity to engage in a discussion about the changes in customer and employee behavior that would result in signficant financial returns.  That would do two things:

• Convince the person asking the question that you are focused on improving the performance of the business
• Generate the working assumptions on which a credible model could be based

Tagged as: Brand Equity, Brand Valuation, Brands & Business Strategy, Create Value, Marketing Finance, Measure Value, Merger Branding

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Today’s breakfast briefing hosted by the Council of Public Relations Firms on “Strategy, Leadership and Communications” went well.  Following a brief presentation of the research findings, we had a lively debate about the role of communications in strategy formation and execution. The research finding that generated the most discussion was that CEOs favor a more active role for communicators in the strategy formation process, but that communicators themselves hold a narrower view of their role, preferring to define it in terms of providing a “sounding board” rather than fully-fledged participation in strategy development.

It helped that the organizers had put together a diverse panel of communicators and strategists from different industries – Chris Atkins (Standard & Poor’s), Ray Jordan (Johnson & Johnson), Herb Muktarian (BAE Systems), Ana Maria Delgado (Organizacion Corona), Emily Yoo (Tokio Marine) and yours truly.  The diversity certainly led to a richness of perspective on the various issues.

I personally was heartened by the extremely articulate views that Herb and Chris expressed about the importance of communicators to define what specific skills/perspectives they were bringing to the top table, and the circumstances under which good communications were most valuable.  Their point was that it was a mistake to believe that the value of communications was intuitively obvious to senior management.

It was nice to hear the Vulcan/Earthling conundrum articulated by others!

Tagged as: Brands & Business Strategy, Create Value, Marketing Finance, Vulcans and Earthlings

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This is the title of tomorrow’s breakfast session organized by Forbes at which I am a panelist.  The session presents the findings of research among the Forbes Advisory Panel about the role of communications in successful strategy development and execution.  Panel respondents were drawn from three groups – CEOs; senior strategists; and senior communications executives.  Not surprisingly, the importance of good communications was not contested by any of the three groups!

My planned contribution consists of three observations:

1. Since two thirds of the value of companies is represented by intangible value, and since that intangible value is the direct product of human ingenuity, then the business case for keeping those ingenious humans aligned and motivated via good communications is a no-brainer
2. The evidence from the market downturn is that companies with a strong brand/reputation (presumably the ones with the best communications) enjoyed a 4% “bonus” relative to their category peers
3. The evidence from the M&A market is that companies using the more nuanced forms of brand strategy (presumably the ones which put the greatest emphasis on good communications) outperform those using the more expedient forms of brand strategy by around 5% per year in the two years following the merger

Somehow, I also need to work in the observation that marketing is about more than communications.  I plan to remind the attendees that marketing’s mandate is about “conceiving, creating, communicating and delivering customer value” – not just the communications piece.  This final observation may be a little unwelcome since the event is sponsored by the Council of Public Relations Firms…

Tagged as: Brands & Business Strategy, Create Value, Customer Value, Marketing Finance

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The question I posed in my last blog entry concerned the most appropriate way in which to measure the value of marketing.  To my mind, the best place to start is consider the entire “value added” of a business, then move on to consider what percentage of that value added can reasonably be ascribed to marketing.

Here are some key thoughts to bear in mind:

• All value added is the result of human ingenuity.  Tangible assets are inert – it is only the addition of human capital that makes a business more valuable than the sum of its tangible assets
• A company does not actually own its human capital (that is, the people themselves) but it does own the results of their work in the form of the unique business systems, new scientific discoveries, unique information and desirable brands that they generate
• Certain industries – basic materials and utilities, for example – rely heavily on physical assets, so the relative degree of value added of human capital will necessarily be lower than in industries – such as software - which employ very little by way of physical assets
• Just as the overall value added by human capital relative to tangible assets varies by industry, so does the relative importance of different forms of intangible value.  For example, scientific discovery is the dominant form of intangible value in the pharamceutical industry but, for consumer goods, it is effective brand management

My belief is that a convincing argument for the value of marketing needs to begin by documenting the importance of intangible value in each industry, and then advancing a compelling argument about the relative importance of marketing vs. other disciplines in creating that intangible value.

My next post will try to establish some rules of thumb.

Tagged as: Brands & Business Strategy, Create Value, Intangible Value, Marketing Accountability, Marketing Finance

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Tomorrow I present the preliminary results of the research that I have been doing into whether there is evidence that certain types of corporate brand strategy are associated with abnormal post merger stock returns.  The hypothesis is that the more nuanced forms of brand strategy (that is, those that do not simply involve rebranding the target company with the acquirer’s brand, or maintaining the target company as a standalone subsidiary) result in greater engagement from employees, customers and investors – and that this facilitates a smoother post merger integration process.

The initial results are encouraging – analysis of 215 mergers using the Fama French 4 factors revealed an abnormal monthly stock return of 0.4% on a portfolio comprising companies using the “sophisticated” brand strategies versus a portfolio using the two “expedient” strategies mentioned above.  The number is not huge, but it is certainly enough to merit further investigation and an expansion of the data set.

We have now classified 350 mergers and the excess returns to the “sophisticated” strategies is still there.  I say “seems to be there” as I have just done a simple comparison of the dividend adjusted returns for each company deflated by the relevant sector index.  Based on a simple average of the results, it would appear that the average returns for companies using the “sophisticated” strategies exceeds the returns generated by companies using the “expedient” strategies by 5% over the two years following the completion of the merger.

I am looking forward to the session tomorrow and expect some great suggestions for how this analysis can be extended and enhanced.

Tagged as: Brands & Business Strategy, Create Value, Marketing Finance, Merger Branding

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I have just completed a major piece of analysis of the valuation of all publicly traded companies with a market cap of $500mn or more. My goal is not to understand whether they are fairly valued or not (if I knew this, this blog would be about fine wine and would be written from my private island rather than rainy New York) – my goal is simply to understand the extent to which their market value is explained by the assets on their balance sheets.

The objective is to ensure that management attention is focused on the assets that are truly driving business value in their industry, rather than the ones that are easiest to see and measure.

As at May 1 this year, tangible book value accounted for [drum roll here] 31% of the market value of the 4,196 companies studied (I excluded all financial services firms from the analysis on the grounds that the valuation of their assets is the subject of so much dispute currently).  That means that two thirds of the value of the global economy is attributable to things that do not appear on the balance sheet.

This number is, of course, an average across all industry sectors.  Tangible book value explains over 50% of the value of energy, materials, manufacturing  and utilities companies but less than 15% of the value of telecoms, healthcare and consumer goods companies.  So while it is appropriate for the former companies to focus primarily on production efficiency, the latter companies clearly need to focus on a different set of priorities.

What sort of things? Well, the international accounting standards board has suggested five types of assets that might account for the excess of a company’s value over its tangible book value – technology, contracts, artistic creations, customer information, and marketing. The next stage of my analysis is to determine how the importance of each of these type of assets varies by industry.

Believe me, it will vary.

Tagged as: Brands & Business Strategy, Business Value, Create Value, Marketing Finance, Measure Value

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I often like to ask my clients this question because it reveals their belief about what a brand can – and cannot – do for their business.

I am always surprised when they choose a strong brand over a strong business model. The evidence from my research (see particularly my article on Value-based Brand Management and Measurement) is that a strong brand magnifies the value of a strong business model, but does little to increase the value of an unprofitable business. Based on a sample of 140 companies over a 10 year period, we found that brand strength increased the value of low profitability companies by 20% versus their more weakly branded peers, but increased the value of high profitability companies by over 50% versus their more weakly branded peers.

The implication of this is that we need to think of brands primarily as a means to magnify the value of already successful companies, not as a means to redeem poorly-performing companies.  A brand’s value is largely determined by the quality of the underlying business.

As an aside, that is why I find the issue of brand valuation so misleading – it encourages you to think of the brand as a separate asset rather than as an integral part of your “go to market” strategy.

Tagged as: Brand Valuation, Brands & Business Strategy, Create Value, Measure Value

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