brand value creation — financial, part 1

Here’s Post #2 in a series on how brands create value.  I’m using Kaplan and Norton’s Balanced Scorecard as an organizing framework and kicked the series off with the Customer perspective.  Today, the topic is Financial jerry-show_me_the_moneybrand value creation.

How brands create financial value is such an important topic (it’s really where the rubber meets the road, right?!) and there are so many data points and examples to reference, I’m actually breaking down the Financial quadrant into 2 posts.  This one is about the short-term, immediate value which brands stimulate for their owners.

Many analyses have proven a stronger brand shifts the demand curve and produces gains in market share and margin. The following are a few specific data points.

1.  According to Millward Brown (MB), one of the world’s leading research companies, stronger brands enjoy higher market share than weaker ones. The firm’s analysis compared over 350 brands using two key measures:

  • “Presence”how many people know about a brand and understand what it has to offer. MB explains, “A brand with a high level of Presence will enter a buyer’s consideration set more easily than a brand with low Presence.”
  • “Voltage” —  how efficiently a brand converts people’s knowledge into loyalty. “Because higher levels of loyalty are associated with increased probability of purchase, a brand with a high Voltage score is positioned well to grow its share of sales in the category.”

The result?  The average market value share (defined as a brand’s share expressed in terms of monetary units – not volume sales) of those brands that scored higher on both Presence and Voltage was 15%. In comparison, those brands that scored lower on both measures held only 3% share on average.  MB’s report concludes, “Brands are valuable to companies because they are valuable to consumers.”

Kimberly-Clark Corporation, the paper products company, provides company-specific evidence of the effects of brand-building on market share.  After introducing a new feminine care brand strategy in Korea intended to increase the differentiation of its products and to target specific consumer needs, the company’s market share in that region grew from 20% in 1995 to over 60% in 2003.

2.  A brand’s positive impact on margins is demonstrated in another Millward Brown analysis (reported in the same paper).   In this research the firm examined over 200 consumer packaged goods brands. It found that brands in the top third of consumers’ esteem (defined as “I have a higher opinion of it than others”) garnered a median price that was 11% higher than the category norm.

By generating such a substantial price premium, MB explains, brands drive higher margins. “The consumers who care about getting the right brand will pay more for it if they can be convinced that it offers key advantages over others,” according to MB.

An industry proof point for the role of a brand in driving higher prices comes from DuPont.  The chemical company conducted a price premium analysis to ascertain the value of the Teflon brand, a non-stick coating for pans and other cookware.  In a test market, the company sold two pans which were identical except one carried the Teflon brand name, the other a generic name.  The experiment revealed that the Teflon brand commanded a price premium of $2 per product. What’s more, it also achieved a higher sales volume than its non-branded counterpart.

These are just a few select analyses and examples that speak to the Financial value of brands.  In post 2 of the Financial quadrant, I’ll review the longer-term, bigger picture dimensions.

Hope this series is helpful and interesting to you — comments and questions are always welcome.

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  • Craig

    In analyzing brands for purchase, of the critical factors I’ve reviewed, is the understand the managers of the brand have of this very issue. I think the 3 key abilities that brands can influence are (i) ability to keep a customer from switching – buying from brand loyalty (maintaining unit volume and lowering purchase acquisition costs), (ii) ability to add a new customer who’s switching or trying the product category for the first time (increasing unit volume and amortizing acquisition costs across larger base), and (iii) ability to maintain a higher price point *and* profit margin than competitors products.

    While there are other factors that a brand can influence, those always seemed key to me. I agree with your post – especially that this is where the “rubber hits the road.” Without converting into higher volumes or price points – recognition alone is just future profit potential, which likely takes more money to convert.


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