Yogi Berra once lamented that, “The future ain’t what it used to be.”   Today companies have a related complaint:  “Brand loyalty ain’t what it used to be.”

No longer can brands expect long-term loyalty, even from its most faithful customers.  As economic pressures mount, competitive landscapes shift, and life simply happens, it may seem pointless for companies to try to lock-in customer loyalty.

Nonetheless, last month the folks at SymphonyIRI Group released a study entitled, “Brand Loyalty:   How Understanding Brand Equity Impacts Brand Loyalty and Delivers to the Top and Bottom Line,” [free registration required] which attempts to deconstruct the drivers of brand loyalty.

The scope of the report is limited to consumer packaged goods, so the findings may not apply to all categories.  Also the analysis defines loyalty as, “Greater than 50% of buyer’s total purchasing is of a single brand, not including ‘private label.’” While you can argue whether or not this is an accurate definition of loyalty, the report points to a few truths about brand loyalty which stand on their own and which stand the test of time.

1. Price does not equal value.

Perceived value drives loyal purchase behavior.  The report explains, “…even when times are tight, brands are important. However, in the context of the new, more conservative world of CPG, brands that provide value are critical.”  But value isn’t about price alone.

The researchers found that when it comes to brand decisions, 79% of consumers consider price and 76% consider past usage and trust of the brand.  Shoppers also factor in requests of household members, product labels, in-store displays, and much more into their buying decisions.

Further twice as many people agree with the statement, “I tend to buy the items that give me the best value for the money” as those agreeing, “I tend to buy the lowest price item.”

So, bottom line, brands can’t bribe customers into loyalty with price.

2.  As brand loyalty increases, consumers are less sensitive to price changes.

While marketers may know this intuitively, SymphonyIRI reports category data to prove the point: “In sugar and butter, where loyalty is pretty low, substantial price hikes have led to sharp drops in loyalty during the past three years. In blades and dish detergent, on the other hand, relatively high brand loyalty has continued to grow despite rather sharp price increases.”

This should be good news to the many companies whose categories have been hit with rising raw material and manufacturing costs.  It suggests that consumers accept some price increases – loyalty is leverage.

And just because a category may not inspire high loyalty in general, it’s not stuck.  The research shows that brands can still build loyalty during inflationary times.  Chocolate candy is an example of a category with relatively low average loyalty (16%) that has seen an increase in loyalty between 2008 and 2011.

3. Private label enjoys loyalty too.

“Private label products have captured the attention, the respect, and the wallets of American consumers,” the report declares. The researchers found nearly all consumers purchase private brand products these days and more than one in three actually seek out private label products.

Although 47% of consumers are buying more private label today versus before the economic downturn began, the strength of private label isn’t simply a result of belt-tightening.  Consumer perceptions of the quality of private label products have become quite favorable in some categories. Across retail channels, store brands are viewed as offering the same or better quality as national brands by more than 50% of the population.

Private label loyalty is strong and growing across many of the top 100 CPG categories, the report shows.

Concluding recommendations come straight from the report:

• Invest heavily in establishing and strengthening brand loyalty, focusing in on and delivering against the most meaningful needs of key and target shoppers.
• Leverage frequent and granular assessments of core and target shoppers to ensure a comprehensive and always-current understanding of value drivers for key categories and brands.

Last week David Ristau, the analyst who publishes daily stock recommendations in The Oxen Report, weighed in on the fast/casual dining industry with predictions for 10 fast/casual companies in the coming year. Chipotle, McDonald’s, and Domino’s were among the companies he analyzed based on growth, profitability, financial health, value, and management.

His write-up, which highlighted several factors that really drive performance in the category, got me thinking about the role of brands as financial drivers. I’ve written and spoken on this topic before, explaining that a brand creates value across the Balanced Scoreboard quadrants of customer, internal business process, learning and growth, and financial. Ristau’s analysis clarified – and supported – my thinking.

He talked about economic moats. This concept, coined and popularized by the Oracle of Omaha Warren Buffett, refers to a business’ ability to maintain a competitive advantage in order to protect its long-term profits and market share. Ristau commented that, “The problem for any dining institution is severe competition and lack of economic moats.”

But he praised Chipotle as having created “a small, economic moat around its brand-name, ease of ordering, and quality ingredients that allow it to appear healthier than some of the fast food competition.” And he was willing to give the benefit of the doubt to Sonic, the 3,500 unit drive-in concept, hypothesizing that Sonic “may be able to leverage its unique offerings into a better moat.”

It’s clear a brand is a critical determinant of the size of a company’s economic moat. A brand provides differentiation and it engenders customers’ preference and trust. And a strong brand is comprised of some intangibles which are difficult for competitors to imitate and for customers to compare. That robin egg blue box from Tiffany’s signals something extraordinary about the brand that no other company could copy.

There are other means by which to create economic moats – including customer switching costs, distribution or market monopoly, and patents – but brand strength is the most sustainable and the least costly.

Which leads to the next performance factor Ristau called out: profitability. He praised McDonald’s for having “done an amazing job improving operating margin over the past five years” and Tim Hortons, the donut chain based in Ontario, Canada, as having “top-notch” profitability. But he expressed concern over Panera Bread’s margins and profitability and criticized Starbucks for significantly increasing SG&A (selling, general, and administrative expenses which includes payroll and advertising) over revenue.

Although real estate, materials, and labor costs have the greatest impact on profitability, brands certainly play a role in this factor as well. A strong brand enables a company to charge a price premium. That’s why Hyundai’s cars may be made at Mercedes’ quality level, as its ads claim (not saying I believe them), but people will never pay as much for them. And higher premiums means greater potential for higher operating margins.

Brand strength can also affect cost negotiations with vendors and business partners, such as a shopping mall developer who is looking for high-profile tenants or a supplier whose wants to associate his ingredient brand with a strong consumer brand.

Growth potential is the other factor Ristau repeatedly factored into his valuations of the companies. His focus was on geographic growth, indicating that the upside he sees in Yum! Brands which owns KFC, Taco Bell, and Pizza Hut, is based on its “good deal of prospects internationally with significant growth capabilities in China and abroad.” And on the other hand he dinged Domino’s for simply being in a market share war with Papa John’s, with little growth potential.

Brands impact growth in a few ways. Generally speaking the higher the brand awareness and equity in existing markets, the easier it is to enter new ones since the company is starting from a base of a little familiarity with and interest in the brand even if it’s small.

Strong brands also attract quality franchisees, distributors, and other business partners usually needed for successful expansion – not to mention employees who increasingly want to work for companies that have the better consumer image and higher purpose that comes with a good brand.

Finally a brand can facilitate the stakeholder alignment and engagement a company needs as it grows. By making clear the values that guide behavior and filters through which all decisions should pass, a brand guides successful execution, as proven by Virgin, the consumer brand conglomerate owned by Richard Branson, which uses its brand identity in a sense of competitive challenge to guide which sectors it should launch businesses in.

Given the power of brands on the fundamentals of financial performance, I wonder if it would make sense for analysts like Ristau to include brand strength as its own factor in their assessments? It would be highly subjective one but, frankly, the other factors seem to be as well – and after all, God created stock analysts in order to make weather forecasters look good, right?!

related posts:

• brand value creation — financial, part 1
• brand value creation — financial, part 2
• the problem with brand valuation

Change happens.  That’s not just a bumper sticker slogan; it’s the state of business today.  Mastering change requires new ways of thinking, talking about, and doing business.

I believe the leading companies in 2011 and beyond will distinguish themselves by embracing these five ideas:

1.  value and values
Over the past decade, we’ve seen the pendulum swing from a focus on businesses’ value propositions to a focus on the company purpose.  Many companies have eschewed a hard core sales- and shareholder-driven mission in favor of one which emphasizes a nobler purpose.  Case in point:  Last month, Ad Age recapped the annual Association of National Advertisers conference with the headline “Purpose-Driven Marketing All the Rage at ANA.”

But to emphasize a company’s purpose over its business proposition neglects the fundamental driver of business – filling a customer need well.  Smart companies understand that it isn’t an “either/or” – it’s a “both/and.”  They must offer value and operate with values.

So they base their brand platforms on both the unique value they deliver to customers and the unique way they do business which reflects their values and purpose.  They are as rigorous as about what they do as how they do it.

2. experience channels
A key component of any business model is distribution channels.  Traditionally businesses have been designed around delivering goods and services to customers through channels – whether through retailers, wholesalers, distributors, or more recently direct channels.

But the different ways customers do business with companies is growing explosively – mobile, click-and-pick-up, co-ops and buying collectives, etc.  And the way customers are using these channels is also changing.  In addition to researching and making purchases, they’re comparing, sharing, collaborating on designs, customizing, giving feedback, subscribing, and exchanging.

Leading companies are changing the way they think about, develop, and use channels.  They’re making them open, flexible, and engaging two-way exchanges.  And they’re partnering with suppliers, media, affiliate, and customers themselves to offer differentiated and compelling customer experiences through them.  No longer a simple distribution point, a channel is an experience.

3. customer engagement measurement
While business gurus have been preaching the importance of customer engagement for years, few companies have embraced it as the primary way of thinking about and valuing their customers.  Most are stuck in the mindset of customer acquisition and retention – how can they get more customers?  And, once they “have” them, how can they keep them?

The reality is that companies no longer “acquire” customers because today’s customers can’t be owned.  In this age of access, very few monopolies — even perceived ones – still exist.  Customers often use multiple brands in a single category, even in B2B markets.  And customer loyalty may be fostered but the bonds of loyalty are no match against deep-discounting, breakthrough innovation, and simple customer wanderlust.

Companies wanting a more accurate and appropriate measure of their customer efforts look beyond customer acquisition and retention to customer engagement. They quantify and track the extent to which customers are engaged with the brand — in terms of depth (emotional commitment), breadth (range of products, services, touchpoints), and length (amount of time). They use these measurements to develop and optimize their customer strategies and to track the true health of the business.

4. advocate relations
Leading companies are also challenging the notion of media and public relations. After all, the lines between traditional media and social media have become blurred and an influential blogger has been proven to be able ignite or crush a story more powerfully than many reporters.

Plus communicating to the broader public is important to only the largest, mass brands. For all others, targeting interested parties and influencers is more efficient and effective.  Developing relationships with the select people who will spread the word on the company’s behalf is far more productive than reaching out to all those who can.

So instead of media relations and public relations, companies on the forefront of communications are working on advocate relations.  Advocates are bloggers, experts, social mavens, and other thought leaders who wield strong influence within the company’s target audience.  Like journalists, advocates are proactively enrolled to communicate messages to the broader audience without compromising their integrity – but unlike journalists, they can be openly biased in their communication of that message, praising a company or a product which resonates with them.

That’s why advocate relations is becoming a priority.

5. content supply chain
Several of these ideas speak to the growing importance of content.  Twitter streams, mobile applications, e-newsletters, online videos – these new communications are as valuable to customers as a company’s products and services.  They’re the way companies do customer service, sales and user support, corporate news and information, public education, community relations – oh, and yes, promotional marketing.

But content has clearly become more than a marketing function — content has become a product in and of itself.

In fact, content development has become a core competency for leading companies.  They’re investing in the production and coordination of content development to ensure its quality and consistency.  And they ensure they have the process and systems in place to produce content efficiently.  They have developed and actively manage a content supply chain.

As these five ideas demonstrate, business as we know it is changing. Companies can either lead the change or follow it.  Thinking differently and challenging the norms have always been the hallmarks of leading companies.

Brand value is all the buzz these days, thanks to the recent release of Interbrand’s Best Global Brands report.  I preempted the action with a post a few weeks ago called “The Problem with Brand Valuation.”  In it I took issue with a specific aspect of most valuation methodologies — a factor to account for the impact of brand on purchase decision which gets applied on a category basis to each company’s market value.

This is just a quick follow-up to pass along 2 additional perspectives that I thought you might find interesting:

1.  2010 Best Global Brands – The Stock Market & Risk — a post on the blog of digital agency Sparxoo by David Capece.  The piece does a deep dive into the market performance of the “best” brands to answer some really important questions about the real, uh, value of brand valuation:

• Do changes in brand value predict changes in stock value, or merely reflect information that is already priced in?   Apparently they have in all of the past 10 years except 2010.
• Do the brands with the strongest momentum hold up in recessions? The answer to this question is a little more involved:  Yes, the largest brands tend to retain their brand value over time.  But it also appears that those brands that had the strongest momentum leading up to a peak are the very ones which performed the poorest immediately into the recession.
• Can the Best Global Brands report provide insight into the broader market? David makes some really interesting observations about what the relationship between past brand performance and value indicates about the current market.

Check out the entire post — it’s really informative.

2.  Interbrand’s Rankings Are Nonsense — a post by brand strategist, author, and speaker Jonathan Salem Baskin.

While I have to respectfully disagree with some of Jonathan’s more provocative statements like “brands don’t exist” and “there are no brands, just constant acts of branding,” the post offers up a very compelling alternative model for measuring brand value.  It incorporates measures like:

• efficiency — a company’s ability to create things not just faster, but more economically than lesser-known names
• risk — a company’s ability to produce lower insurance exposure and higher business performance expectations, and
• sustainability – a company’s ability to endure a product failure, corporate crime, or other negative impact.

I find a lot of merit in this way of thinking about brand value.

I hope you get as much out of reading different perspectives on brand valuation as I do.  Please share the resources you have on the topic on the comments here!

related posts:

• the problem with brand valuation
• best global brands dos and don’ts
• brand value creation — financial

We’re about at the midpoint between the release of Forbes’ “The World’s Most Valuable Brands” report back in last July and Interbrand’s “Best Global Brands” report which is due out on September 15th (it usually gets picked up by Businessweek.)  You know those studies which report, for example, that Coca-Cola is the world’s top brand, or that Google’s brand value at $39.7BB is still way off from Apple’s at $57.4BB.  So I thought now would be a good time to raise a concern I have about these methodologies.

But before you peg me as “one of those people” who make sport out of bashing these analyses, let me assure you that I see tremendous value in brand valuation (see related posts below).

brand valuation can be valuable

For corporate valuation purposes, being able to quantify the economic value contributed by brands (vs. other assets) is extremely, er, valuable.  And in many cases intangible assets like brands (and intellectual property and workforce know-how) are what truly differentiates a corporation and enables it to combat competitive and other attacks, so it can be helpful to measure and track their value relative to competitors and the category average.

I’m also aware of the common criticisms waged against brand valuation (their results are skewed because private companies are not included, it’s misleading to try to reduce the richness of a brand into a single number, etc.) – as well as its misuse (the head of advertising for a leading consumer electronics firm told me her company leadership used brand valuation to evaluate the performance of her group.)  But even these are not my primary cause of concern.

What I take issue with is a specific aspect of the valuation methodology which seems to be present in all the brand valuations I’m familiar with:  a factor to account for the impact of brand on purchase decision which gets applied on a category basis to each company’s market value.

brand impact is factored into all methodologies

Interbrand’s method incorporates a “role of brand analysis” which is described as “a measurement of how the brand influences customer demand at the point of purchase…We use in-house market research to establish individual brand scores against our industry benchmarks to help us define the role a brand plays within the category.  For example, we know that Role of Brand is traditionally much higher in the luxury category than in the energy and utilities sector.”

Forbes’ describes its approach to incorporating category-level brand impact saying, “We allocated a percentage of [net earnings] to the brand based on the role brands play in each industry. (Brands are crucial when it comes to beverages and luxury goods, but not so much, say, with airlines, when price and convenience are more important.)”

Even the more rigorous, albeit lesser known, brandmetrics study incorporates such a factor in its modified Delphi forecasting technique “which is used to work out the percentage of the brand’s value added profits that are directly attributable to the brand.”  It calculates the influence of the brand on core premium profit generators (control of costs and customer relationships for example) to determine the “brand premium profit” by category – e.g., the portion of economic profit attributable to the brand for media titles is 80-90%, retail 63-67%, and energy 45-50%.

The problem with these category-level brand impact factors is that they assume brand impact is the same across the category and brand impact is a given for the category – neither of which are safe assumptions.

brand impact varies

It’s incorrect to assume that brand impact is universal within a category.   Consumer decision-making is not so clear cut.

Need-states play a significant role in how important a brand is (a need-state is defined by a group of consumers who seek similar product benefits and attributes in a particular usage occasion).  Take hospitality – different people in different situations pay attention to brands very differently when it comes to choosing a hotel.  If you’re a wealthy businesswoman on an expense account or family with kids traveling to a foreign country, your hotel selection might be driven a lot by brand, whereas a road-tripping college student probably couldn’t care less.

Brand impact also varies within category depending on whether your brand is at the high or low end. Generally speaking, brands are more important at the high end where attributes other than price have stronger influence.  You probably don’t know or care what brand of cheap flip flops you bought at the beach this summer but you’re sure to remember that your Manolo Blahnik’s cost your entire paycheck.

brand impact isn’t a given

It’s also incorrect to assume that the impact of brand is static for a category.

All it takes is one company to launch a serious effort to make brand make more a difference, and the dynamics of the entire category change.  Jet Blue made lots of people care about the brand of airline they selected; Cuties made me more selective about the brand of tangerine I put into my shopping cart; Shoebox made my friend spend more time in the greeting card aisle.  Before these brands came onto the market, their categories were driven more by distribution – but now brand plays a much greater role.

And as category structure changes, brand impact changes as well.  If a category is dominated by one player, like Google in search, brand probably doesn’t have as much impact as it does in a highly crowded category like apparel retail.  A strong challenger can either break up a monopoly and increase the role of brand in a category by giving people a choice in brands – or it can make brand differentiation much less important by commoditizing the category with super-low prices.

Finally as the impact of a category changes, so does the impact of brands in the category.  This past June oil company brands became a lot more salient to a lot more people when the BP well exploded.  Right or wrong, I’m guessing people are now paying more attention to the gas stations they patronize.  Likewise, the brand wars between Evian, Aquafina, and Dasani have probably fizzled as less people drink bottled water now.

what do you think?

I understand why brand valuation firms feel a need to incorporate a measure of brand impact – they’re trying to isolate the brand from the business.  But until there is a more accurate, more dynamic way of accounting for brand impact, I’m afraid I can’t fully endorse any of the methods.

What do you think?  Do current brand valuation methods appropriately account for brand impact?  I’d love to hear your POV.

related posts:

• a little sticker makes a big difference
• best global brands dos and don’ts
• brand value creation — financial

(the image above is the cover of a book, Brand Valuation, by Interbrand)

Consensus Advisors just released their 2009-2010 Retailer Health Ratings (RHRs) report.  The RHRs measure and compare retailers over a five-year period on:

• healthy growth
• asset utilization
• pricing power
• balance sheet strength

The report and webinar were really interesting and so I thought I’d share some of the insights and my reactions.

1.    weaknesses of comparable store sales as a measure of retail performance

I wrote a post about this awhile ago and so I was pleased to discover Consensus shares my concern with comp store sales, which indicate the growth or decline of sales of stores that have been open for a year or more compared to the same period the year before.

Although they are the primary means of reporting retail results, “’Comps’ are short-term focused and potentially misleading when viewed out of context as they can be driven by unhealthy margins, inventory levels, advertising spend and consumer credit practices. Comps also say nothing about a retailer’s financial leverage, brand strength or ability to manage efficiently the assets on its balance sheet.”

The RHRs, in contrast, provide a more balanced and longer-term evaluation of a retailers’ performance.  Consensus uses 15 different measurements and weights them according to their correlation to the retailers’ results on commonly used financial metrics such as return on assets, net income margin, total investment return and return on invested capital.

For example, they don’t just look at the sales growth of a retailer – they also take into account sales volatility, cannibalization, and sales momentum.  And then they adjust that result to reflect operating profitability.  With this more detailed view, I find the strengths and weaknesses of a company relative to its competitors become much clearer.

2.    pricing power as a measure of brand strength

By looking at change in gross margin as well as gross margin volatility, Consensus claims they assess the strength of a company’s brand.  They explain, “As a brand distinguishes itself first from commodity competitors and then from branded competitors, its desirability to its customers can command a price premium.  Sometimes this premium is reflected in an increased price to the consumer; sometimes it is reflected in a stable selling price which does not go down as costs are reduced. Healthy companies enjoy brands that command steadily improving gross margins.”

I agree pricing power generally reflects brand strength from the consumer point of view – I’ve made this point myself.  But I wonder about how the Free economy changes this.

As Chris Anderson points out, “Virtually everything Google does is free to consumers” and yet one could argue that Google is one of the strongest brands today.  (BusinessWeek/Interbrand’s 2009 Best Global Brands report ranked Google as the #7 brand in the world and estimated its brand value at nearly $32BB — an increase of 25% from the prior year.)

For free offerings, user preference, perceived differentiation, esteem, etc. are probably the best measures of brand strength – and publicly available financial metrics such as the ones tracked by the RHRs may be limited in their ability to fully or accurately reflect brand strength.

3.    brand focus vs. product focus

Pointing to the recent struggles of youth apparel brands Pacific Sunwear, Hot Topic, and Zumiez, Michael O’Hara, Chief Executive Officer of Consensus, remarked about the risk associated with too specific of a focus.  After I submitted a question about this, he clarified his point saying that retailers need to have a flexible store concept that gives them the ability to migrate away from something that once was not but is no longer.

“Pac Sun,” he explained, “will always have to be about the beach, but to the extent that the beach goes out of style, then I wouldn’t want to be Pac Sun.”  He contrasted this with lululemon athletica which he perceives is more flexible because they’re associated with exceptionally high quality, high performance fashion apparel.  And so while right now they are into yoga apparel, he argues, if women suddenly got into ice hockey for example (but let’s hope they never do), lululemon can go there too.

While I don’t necessarily agree with him because I believe yoga defines lululemon, I do think he makes an important distinction.  In my mind the difference between these two examples is brand vs. product.   If your brand is tied to too narrow of a product assortment, it’s harder to evolve your offering as trends come and go.  But if your brand is defined more by values and personality attributes, you have more flexibility.

This is a particularly important point for apparel retailers where product demand changes so quickly.  Brand focus is indeed important but so is the ability to shift product focus — within the brand context — between categories and types.

There are lots of other juicy insights in the report so I encourage you to take a look (purchase required) or at least download the webinar presentation.

related posts:

• free to be free
• six best practices in retail

Last week I had the pleasure of serving as a panelist on the marketing track for the 26th Annual Southern California Business Growth Conference.  Co-hosted by the Harvard Business School Association of Orange County and USC Marshall Alumni Association, the conference attracted over 1,000 of the region’s elite business leaders, innovators and entrepreneurs.

Between the keynoters, Tony Hsieh (CEO of Zappos and the Author of “Delivering Happiness“) and Bob McKnight (Chairman of the Board, CEO and President, Quiksilver Inc.) and my fellow panelists, I gleaned a lot of insights.

Here are some of the best bits I took away from the day:

on thinking about business differently

Tony Hsieh:

“We’re hoping in 10 years people won’t even realize that we started selling shoes…  Maybe Zappos could run an airline.  We would be like Virgin which is so many different businesses but while Virgin is about being hip and cool, we’d be about providing the very best customer service.”

“Customer service shouldn’t be a department; it should be the entire company.”

“We don’t tell [people about customer service], they experience it. We do things like surprising them with overnight shipping, we don’t use scripts, we don’t upsell.  If we’re out of stock on an item, we’ll look at competitors’ websites and let people know 3 different sites that have it in stock and direct people to buy from there.  It’s not about maximizing every transaction; we’re trying to build lifelong relationship with customers.”

“People ask us if we’re afraid of being so transparent [about our culture and values] with our vendors.  We actually think it’s a good thing – because now we have an extra 1,500 pairs of eyes watching what we’re doing and helping us co-manage our business.”

on the importance of having a great product

Bob McKnight:

“It’s all about product – it has to be compelling, innovative and exciting.  We need to inspire loyal fans and first time customers alike to see something they have to have.”

“We have to really be on our feet on product.  In a recession, people aren’t buying just for the sake of buying; they buy for a new product, style, or technology.”

“We’re focused on product development leadership across all of our brands.  We devote all of our talent to fantastic, high quality, innovative products that help build our brand integrity.”

on fostering culture

Tony Hsieh:

described the hiring process at Zappos:  every candidate goes through 2 interviews.  One is with the hiring manager, who ensures the person has the right skill set, relevant experience, etc.  The other is with human resources, who interviews for fit with our culture.  People must pass both to be hired.

“Your values must be committable, meaning you have to be willing to hire and fire based on whether people are living up to them regardless of job performance.

Bob McKnight:  “Of course we enjoy the $300,000 orders from Nordstroms but we focus on the $300 order from [independent surf shop] FrogHouse.  We always need to focus on the core [customer] and if we do that, we can’t lose.”

on why brands matter

Michael Distefano, Chief Marketing Officer, Korn/Ferry International:

“If you give a man a fish, he eats for a day.  If you build the man a brand, all the fish swim to him.”

“Brands take away the guesswork.” [brands lay the foundation of trust with customers so you can cross-sell]

Ray Baird, President and Founder, Rieches and Baird:  “Brands create value for companies.” [brands represent an average of 66% of assets on the balance sheet for B2B companies, according to Interbrand/Business Week]

on brand development

Ray Baird:  “Alignment with the business strategy is key.  Oftentimes I have to tell clients, ‘you don’t need a brand; you need a strategy.’”

Mark Anderson, Managing Director, TrueNorth International: “There are 3 things when it comes to visual expression of the brand:  it must be consistent, it must be tightly controlled, and it must be pervasive.”

Peter Bretschger, CMO/CFO, Integrated Marketingworks discussed the need for an inciting marketplace condition in order to introduce a brand:  whether you take advantage of something that just happened (e.g., Ford seizing the moment during Toyota’s recalls) or you create the condition through a PR campaign, you need to build a heightened awareness of the need for the solution you’re selling.

Michael Distefano:  “For service providers, you need to be flexible [about your brand strategy].  You need to get input from your stakeholders and make adjustments because they’re the ones who have to buy it in order to sell it.”

Tony Hsieh – “The telephone is one of the best branding devices out there.  You’ve got 5 minutes with a customer and if you get that interaction right, they’ll tell their friends and family and they’ll become loyal customers for life.”

Ray Baird discussed the trade-off between building a brand fast, cheap, or well, saying “ The big idea makes time for itself…nobody remembers us for how fast we got something done or how much they paid us for it.”

This is a continuation of the debrief from the Brand Managecamp conference.  In my last post, I relayed insights about Innovation from the “elite conference on branding” that I attended in Las Vegas last week.   Today I’m covering the 2 remaining themes that arose – both fall under the category of “stuff that matters”:  Substance (meaning, mission, authenticity, integrity) and Results (ROI, accountability, behavior, reality).

Substance
In an age when “branding” is often associated with nifty social media campaigns and cool logo designs, it was refreshing to hear many of the conference speakers emphasize the Substance of brand development:

•    John Gerzema, Chief Insights Officer of Y&R and author of The Brand Bubble, explained emerging cultural values that call for more substantive management approaches.  For example, the rising emphasis on ethics and fair play requires a consumer strategy rooted in empathy and respect.  Therefore the management principle is to deliver both value and values.  John pointed to BMW which has adopted a strategy of “design in the context of modesty” and GoreTex which operates a very flat organization – both are producing products that are more in line with today’s consumers’ expectations of authenticity and integrity.

•    Marketing legend and Kellogg professor Phil Kotler introduced “Marketing 3.0” aka Value-Based Marketing and the following grid that outlines how a company engages customers on all levels (mind, heart, and spirit) through its mission, vision, and values.

He used S. C. Johnson as an example of a company who has transitioned to this more meaningful approach, wherein their mission of “Contributing to the community well–being as well as sustaining and protecting the environment” is more than the corporate social responsibility platform — the “soul of the company is concerned with the shape of our world,” explained Kotler.

•    Even Guy Kawasaki’s presentation on intrapreneurship touched on the importance of Substance.  Guy advanced the notion that companies that want to make “meaning” are more successful than those that only want to make money.

Results
To complement the qualitative “Substance” topics of the conference, several speakers covered the more quantitative theme of Results – that is, how to measure and manage brand development in order to produce quantifiable results:

•    Kevin Clancy, of Copernicus Marketing Consulting, started things off with a great soundbite:  “The way to reset business is not to change tactics (e.g. going from traditional media to digital); we must change return on marketing investment and change brand strategy.”

•    Jonathan Salem Baskin, author of Branding Only Works on Cattle and the Dim Bulb blog, advocated for a behaviorally-driven approach to brand development.  He spoke of brands as transactions of reality – after all, consumers live in reality and decide what to buy/do/make/etc. in reality – and argued that brand equity should be measured transactionally.

A couple of his 10 Rules for Branding in a Post-Brand World:

• Understand ‘What’ Before ‘Why’ – that is, understand what makes consumers act.  Instead of promoting “virtual consumption” (a term coined by former Coke leader Sergio Zyman to describe a shift in consumer attitude but not behavior), a marketer’s approach should be to understand the things that lead people to buy the product and then to do more of those things.

• Conversation Needs a Purpose — despite all the hype about the conversations that social networking tools make possible, conversations themselves are agnostic – it’s how we use them that makes them valuable.  We should use them to drive behavior – and we should measure their value by how they impact behavior.

Jonathan ended with the call to action: “Doing is the new thinking.”

•    Prophet CEO and Chairman Michael Dunn shared principles for measuring results from his new book, The Marketing Accountability Imperative.  He explained that marketers must establish clear, logical, and increasingly defensible  financial linkages between marketing investment and two outcomes:

• in period sales response – the incremental sales driven by a particular marketing activity

• brand/customer equity impact – a reservoir of perceptions and beliefs to draw from to grow sales and/or to stem a sales decline

As such, we need to:

• measure what matters – which requires us to deeply and fully understand what drives sales

• focus on decision-making – change the conversation between marketing and finance – replace the typical silo-based view of investments with the tools and language to allow all senior players across functions to engage in the debate about marketing investment.

Michael advocated being disciplined about articulating a clear path to value – from marketing  intent to value creating behaviors to present and future business results – and briefly described approaches for doing so.  I’m sure his book provides great advice and instruction on this, so I can’t wait to read it.

Hopefully that gives you a good sampling of the great content from the Brand Managecamp conference.  I encourage you to listen to the podcast below to hear actual excerpts from these presentations.  I’m still processing all that I learned so you’ll probably see the themes of Innovation, Substance, and Results in future posts — but for now, comments are open for feedback and questions.

related post:

• fresh thinking from brand managecamp

Now that everyone has had a chance to digest BusinessWeek/Interbrand’s Best Global Brands report, I thought I’d offer some suggestions for how to use the results. There’s a risk that if someone doesn’t know what brand valuation really means or what it’s useful for, the conclusions and implications drawn from the report could be off.

And while I’m in no way an expert on brand valuation, I have spent quite a few years using the results of the BusinessWeek/Interbrand study, as well as similar rankings from Brand Finance, Millward Brown’s Optimor, and others.

This is what I’ve learned:

DO:  use brand valuation as a way of proving that brands create shareholder value. When a finance-oriented executive questions the need to invest in brand-building, relaying the reports from well-respected organizations like BusinessWeek helps.  These studies provide empirical evidence of the value to stockholders of a firm’s brand-building activities.  And their methodologies are usually very similar to the way other corporate assets are valued — that is, on the basis of how much the brand is likely to earn for the company in the future (see BusinessWeek/Interbrand’s methodology).  So brand valuation allows you to make a rational, quantitative argument for the value of brands and brand building.

DON’T:  focus on brand valuation as the sole measure of the value which brands create. Although a brand’s role in shareholder value creation is impressive, it also creates other financial value – increased sales, market share, and price premium.  And a brand’s value extends beyond numbers to:

• value for customers by simplifying and facilitating purchase decisions (see brand value creation – customer)
• value in internal business processes by optimizing product development, supply chain management, and customer relationship management – and the resources that drive each of these processes (see brand value creation – internal business process)
• value in company learning and growth by increasing an organization’s ability to change and improve (see brand value creation – learning & growth)

It’s important to remember (and measure and manage) these outcomes of brand-building in addition to shareholder value.

DO:  use brand valuation to evaluate M&A and other business strategy decisions. A brand’s value is definitely a factor when valuing an acquisition:  The folks at Coca-Cola paid $4.1BB to acquire Energy Brands, Inc. when the actual business was worth a fraction of that – why?  Because of the Vitamin Water brand.  Coke wanted access to the enhanced water and energy beverage market and what better way to get it than with a solid brand like Vitamin Water.  While brands don’t currently show up as a line item on balance sheets, the intangible value of a brand is certainly an important consideration in corporate planning moves.

DON’T:  use brand valuation to evaluate marketing efforts. Certainly marketing and promotion have a tremendous impact on the strength – and therefore, the value – of a brand.  However, there are too many variables that impact brand valuation for a direct correlation to be drawn between it and marketing effectiveness.  I’ll comment more on these variables in a moment, so the point here is simply that brand valuation is a macro, business metric that’s useful for assessing corporate value, not ROI on marketing.

Instead marketing efforts should be evaluated by marketing measurements according to how well they fulfilled marketing objectives.  For example, if a marketing campaign was launched to introduce a new product, then a consumer research study to measure awareness and trial is an appropriate evaluation.  Or if a promotion is engaged to increase retention, then analysis of CRM data would yield an appropriate assessment.

DO:  use brand valuation primarily on a category-specific basis. Steve McKee, of the book When Growth Stalls and the just-launched FindYourNerve project, best explains it:  “…while the relative value of non-competing brands is fascinating (e.g. IBM is worth more than Toyota), it’s not terribly relevant to either company. And while the absolute value of any one brand–especially those with values in the tens of billions of dollars–is stunning, the most significant measure is how one brand stacks up relative to its competitors in a given category. If a brand is losing ground while its competitors are gaining, then it has something to worry about.” (emphasis added)

DON’T:  confuse brand valuation with brand strength. Company size, distribution/penetration, amount of brand-building investment, etc. affect brand value.  In fact, BusinessWeek/Interbrand doesn’t include airline brands in their rankings because they say “it’s too hard to separate their brands’ impact on sales from factors such as routes and schedules.”  While I don’t agree with the decision to exclude airlines, it does seem to indicate that brand value is inherently linked to business size and scope. So a small company may not rate highly in the rankings despite having a strong brand.  A better measure of brand power, therefore, is the Brand Asset Valuator or other similar tool.

I hope these thoughts are helpful to you.  Feedback is always welcome.

related content:

• brand value creation – financial, part 1
• brand value creation – financial, part 2
• how strong is your brand

Continuing in the series on my favorite brand resources (see fave brand books and blogs)…Today it’s 5 of my favorite brand articles.

I have a huge filing cabinet which is stuffed full with copies of articles, presentations, research papers, and speeches – but I find myself continuing to return to a few pieces time and again.  These pieces, dog-eared and covered with notes and highlights, contain truths and insights which have informed my thinking about brands and marketing – and even though some of them are old (one was written nearly 50 years ago!), I continue to reference them because the content is so powerful and relevant to today’s business challenges.

Here are 5 of those great brand articles:

note:  In order to respect the authors’ intellectual property (and copyright laws!), I’m including links to official sites from which you can access the pieces – in a few cases, subscriptions or fee payments are required  (the content is worth it!)

1.  Marketing Myopia – by Theodore Levitt, published by Harvard Business Review in 1960, republished in 2004.  Levitt’s seminal paper introduces the famous question, “What business are you really in?”  It challenges readers with the assertion that businesses will do better in the end if they concentrate on meeting customers’ needs rather than on selling products.  The paper is about more than marketing; it’s about strategy and how to ensure your business continues to grow.  That’s what I love about it.

2.  What Great Brands Do – by Alan M. Webber, published by Fast Company, August, 1997 – Way back when Starbucks was still an up and coming brand, Scott Bedbury was the company’s chief marketer.  Prior to that post, Bedbury directed Nike‘s worldwide advertising efforts and broke the “Just Do It” branding campaign.  So this guy is a great brand-builder and when Fast Company asked him to identify his 8 brand-building principles, I listened up.  This piece explains some of the best brand tenets I’ve heard, including “A great brand knows itself.”

3.  Brand Leverage – by David C. Court, Mark G. Leiter, and Mark A. Loch, published by McKinsey Quarterly in May, 1999 — Reporting on research into the connection between brand strength and corporate performance, this article unlocks the mystery behind brand leverage – that is, the power of a brand to move into other business domains.  It also prescribes success strategies for brands that are focused, and those that are more diversified.  I found the piece clarifying when I first read it and I believe the principles still apply today.

4.  Brands Matter: An Empirical Investigation of Brand-Building Activities and the Creation of Shareholder Value – by Thomas Madden, Frank Fehle, and Susan Fournier, published by Harvard Business School, 2002 – Like many other papers on brand valuation, this one reports on research which proves that brands deliver statistically- and economically-significant performance advantages such as stock returns and returns on equity.  What makes this paper so remarkable to me, though, is that the research found that firms which had developed strong brands created shareholder value with less exposure to risk – thus supporting the role of the brand in reducing the volatility and vulnerability of cash flows.  It’s convincing data to share with CFOs and other brand skeptics.

5.  Varying Perspectives on Brand Equity – by Jonathan Knowles, published by American Management Association’s Marketing Management, July/August, 2008 – This article puts forward simple, but not simplistic, arguments that marketers can use to show how brand equity is a critical measure for demonstrating marketing’s role in adding to business value.  I particularly appreciate the author’s instruction on how to use brand valuation data to frame the business case for marketing investment.

As with previous weeks, I had a hard time narrowing down all the great options to these 5 – but for now, these are my favorites.  Please check back next Friday as I conclude the 5 favorites on Friday series with 5 of my favorite brand podcasts.

P.S.  Please vote for best blogpost to help me celebrate the 1 year anniversary of my blog – and be entered to win a $50 Nike gift card – it’s my attempt to thank you in some small way for your loyal readership!