The Real Value of Brands

By September 16, 2015 Thinking No Comments

The Real Value of Brands

Tom Golland and David Miller head up the Strategy and Insight team within Gravity Global helping companies devise brand strategies that lead to commercial opportunities.

With an established reputation for working with the Boards of its global clients to build the brand into a strategic, commercial asset, Gravity has developed a proven methodology.

This robust approach demystifies the brand and helps organisations to realign their brand and what they stand for, with their commercial opportunities, their business and competitive strategies.  And as a result, builds shareholder value.

Brand is king for top companies.  A strong brand drives up the shareholder value of these businesses, which is why they spend on them.  Latest research shows that companies globally spend nearly half a trillion dollars annually on branding – and that is just the tip of the iceberg as it does not take into account strategic, corporate and internal communications of the brand.

Intangible assets represent nearly 80% of the value of the S&P 500, and for many businesses a great deal of that value is derived from the brand.  The McDonald’s brand alone accounts for more than 70% of the stock market value through the influence of its brand on the choices of customers, employees, investors and government.

The City is alive to the value of the brand too:  analysts look at the shareholder value of a company in terms of not only its cash flow and realisable assets but also intangible assets such as brand.

How To Create A Strong Brand?

Organisations may think they own their brand, but they do not.  As Jeff Bezos, Founder and CEO, says: “Your brand is what people say about you when you’re not in the room.” Think of ‘brand’ and ‘reputation’ as being pretty much interchangeable.  You can influence reputation but you can’t own it.  Hence your brand vision is where you want to be and a sound brand strategy is how you build and maintain your brand’s reputation and its consequent value.

The brand is the belief in the head of the customer who says: “It’s probably worth paying a premium for what they are selling me”; the belief of employees and prospective new ‘talent’ who say: “What they do appeals to me, I want to work for a company which behaves in ways I approve of”.  And the belief held by the investor who wants a return on his investment, who believes in the sustainable advantage a brand has in the market: “ They’ll continue to earn a premium over their competitors, I’ll keep on investing in that company.”

Finding the right brand positioning is all about finding out where the market’s pain is and what is causing it.  Consumers and companies hate pain and the route to diagnosing and curing it means getting insight into every aspect of what makes them tick, and always asking the question “why should the prospect be desperate to buy, and what will make them believe we are better at curing their pain than our competitors?”

The ‘cure’ lies in telling the market exactly what the company does, and exactly how that solves their pain – two of the prime ingredients in building the value of the brand.  Also, two things organisations struggle to do, particularly those with intangible service offerings.  But every business needs to be single-minded and truthful in developing what their brand stands for, by answering some simple questions:

•  What kind of business are we?

•  What pain do we help our market to eliminate?

•  In our customer’s eyes, what business value would they miss if we no

longer existed?

•  What are the touch points and brand behaviours that are critical to building a positive brand experience and an emotional bond with our customers, employees, partners and shareholders?

…….simple questions, and the Board that can’t answer them easily and consistently can’t expect their salespeople to sell, or their operational staff to build a better customer journey, or the HR department to attract the best talent.

But if brand strategy all sounds a bit hocus pocus, it isn’t.  Building a sound and valuable brand is driven by process designed to achieve the goal of true alignment of market opportunities, the business strategy and the brand.  And, of course, in creating the brand strategy, there’s nothing wrong with a bit of passion and a dollop of creativity!!

And when you think you have a successful brand, protect it.  It takes just one small mistake, and a lack of respect for the brand, for shareholder value to be destroyed, which Ratner found to his cost when he said of his products “it’s all total crap.”  Because perception is king, and negative perceptions invariably over-power positive ones.

Brands and Sustainable Shareholder Value

The influence of the brand on sustainable, profitable revenue, and thereby shareholder value, is driven by the strength of a brand and its impact on customer equity or customer loyalty.  Customer satisfaction is a measure often used to measure the effectiveness of the business.  But one telling measure of brand strength is how few customers desert when they have something to be dissatisfied about.  Or put another way, it can be measured by the number of times the market is able to forgive whatever the company has done to lead to their dissatisfaction.

There are different accounting ways of measuring brand equity on a balance sheet, but to maintain brand strength, regular measurements should be applied, benchmarked against competitors and acted upon: measures such as brand awareness amongst target audiences, changes in brand perception, social media sentiment, the likelihood of customers recommending the brand to others, and the cost of customer acquisition and retention.  Ensure these and other indicators are travelling in the right direction and sustainable, profitable revenue will follow.

Then think of maintaining the brand as constantly pulling on a series of levers, and when they’re in balance, the brand will deliver.  Communications are represented by just one of those levers, albeit an important one, and constant attention must also be given to the customer experience, the behaviours of your employees, the organisation’s ability to live up to its promises, the values expressed.  And many more!

The following are just two of the organisations where Gravity has worked with senior management teams to address strategic brand issues and, by following up with integrated marketing and communications programmes has positively impacted shareholder value.

A major global systems and services company with a €14bn turnover and operating in 5 market sector, aerospace, space, transportation, defence and security, saw its share price depressed against its peers.  The market did not understand how the diverse business operations were contributing to shareholder value and saw higher returns from a split up of the group.

The Board knew that a fragmented business would not operate as effectively, but they found it difficult to articulate exactly what did drive value and synergies across the business. Working with Gravity, an extensive research programme was conducted to establish the perceptions of city analysts, customers, prospects and employees.  The results showed that few could express with any consistencywhat made the company a better choice than its competitors, and what it’s sustainable strengths were.

Work then began on defining the core set of capabilities running across all the five operating divisions which would differentiate the company from its competitors whilst delivering both customer benefits and operational value.  And from a strategic, commercial point of view, Gravity worked with the Board to define the reputation, core capabilities and value delivered that would need to be articulated to bring long term competitive success.

Put simply, Gravity found out what audiences really wanted to know about the company.  It then developed an integrated marketing programme which told a “story” about the company reflecting core values, experience, culture and capabilities which combine to deliver value to customers and the business in each of its target sectors.  This clarity of strategy has provided a platform for corporate, market and internal programmes of brand development.  Follow-up research has shown that the market has a better understanding of the core capabilities that drive the company’s performance, and they can see how this provides a competitive market position that is defendable from attack.

A Business Service Group with two companies offering different, but linked, services had a problem.  The market did not recognise that the two operating companies could work together and provide a ‘joined up’ service thereby denying the Group potential crossover sales revenue.

The solution was to create one ‘brand’/one ‘identity’ under which the two companies could operate.  The first step was to identify the core strengths of the Group, and then reflect it in the branding of the two operating companies and communicate the new brand and its values to target audiences.

Critical to the success of the re-branding exercise was that Gravity was brought in at an early stage and continued to work with the Group throughout the re-branding process.  Gravity created a new identity for the operating companies and played a key role in communicating the brand values to both internal and external stakeholders..  The change in branding contributed to an increase in the Group’s turnover from £2million to £47million in just five years.

What A Strong Brand Does

Strong brands of course generate more profitable revenue than weak brands, but most importantly, a strong brand is able to sustain its commercial performance more robustly in periods of economic downturn or aggressive competition.  A strong brand, articulated with clarity will have a direct impact on the business, and ultimately shareholder value, in the following ways:

•  Build defendable foundations for long term growth

•  Maintain price and profit margin resilience in the face of competition

•  Achieve faster penetration of new markets

•  Engender customer loyalty and increase customer lifetime value

•  Reduce the cost of customer acquisition and retention

•  Reduce the cost of attracting skilled talent

It is part of every CEO’s job to be the guardian of shareholder value and to grow the value of the business.  The CEO needs to embrace the brand and marketing must ensure that the brand’s contribution to sustained, long term profitable revenue and shareholder value is fully recognised.

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