The series on brand value creation continues today with a look at how brands create value for companies in their Internal Business Processes.   Although a brand’s ability to create value from the Financial and Customer perspectives is probably the most important, its impact on Internal Business Processes is the most fundamental.

Let me back up a bit.  As a reminder, we’re using the Balanced Scorecard as a framework for identifying all the different ways brands create value for companies.  The Internal Business Processes section of the Balanced Scorecard is intended to help leaders evaluate how well their business is running and whether its products and services conform to customer requirements.

A brand lends itself to such an evaluation if the company has adopted the “brand as business^TM” management approach.

What is the “brand as business” management approach?  It is the deliberate and systematic management of the business around the brand — thinking of the brand as the business.  The “brand as business” management approach is based on using your brand as a management tool, not simply a marketing asset.  It’s about operationalizing your brand — integrating your brand and your core company’s operating system.  (The American Management Association recently published an article of mine which explains “brand as business” in more detail.)

OK.  So that was all to set up the discussion on Internal Business Process brand value creation.  When the “brand as business” management approach is employed, the brand impacts the three primary processes of any business:

• product development
• supply chain management, and
• customer relationship management

– and the resources that drive each.

Processes.  To the business processes themselves the “brand as business” management approach contributes focus, efficiency, and power.

• For example, in the product development process the brand focuses R&D on target requirements and value delivery as articulated in the brand platform.  And the brand is used as a filter at each juncture of the stage-gate process.  Evaluations of the fit and viability of new offerings happen faster and more easily with the brand providing a clear, consistent standard.

A strong brand also reduces the cost of new product introductions and improves the success rate of line extensions, cross-selling, and up-selling by stimulating trial and adoption among existing customers.  As noted in my post on Customer brand benefits, customers are more likely to try a new product if they already have a relationship with the brand.

• In the supply chain management process, a strong brand can give a business more negotiation power with suppliers, manufacturers, and distributors.  Having the upper hand in negotiating inventories, logistics, and payment terms is certainly a desired advantage in the constraints of the current business environment.

• Brands impact the third primary business process, customer relationship management, by helping the company to establish relationships with customers in the first place.  Over time strong brands engender trust, and when customers trust a company, they are willing to give the company information like personal data, insights about needs and preferences, and usage information which enables the company to create better customer contact and service strategies.

Those advantages then help businesses retain customers by fostering relationships which are valued by customers.  And instead of having to rely on instituting switching costs which deter existing customers from defecting to a competitor but which may also pose barriers to customer acquisition, companies with strong brands simply enjoy brand loyalty — which by definition prevents brand switching.

Brands also make customer relationships more profitable — an increase of 5% in loyal customers in some categories delivers 95% greater profitability over a customer’s lifetime, according to brand loyalty expert Robert Passikoff who founded and heads up Brand Keys, a research consultancy specializing in customer loyalty.

Furthermore, Passikoff’s research indicates it takes 7 to 10 times the cost to acquire a new customer as it does to keep an existing one.

Resources.  At the resource level of Internal Business Processes, a brand-driven management approach is about optimization.

• A strong brand optimizes your human resources, for example.  You can experience better results in recruiting because a strong brand attracts a larger and/or better applicant pool.   One fast food restaurant chain experienced a dramatic increase in responses to its help-wanted ads simply by adding visual elements from the brand identity to its advertising.

Companies which employ the “brand as business” management approach use the brand as a means for screening candidates, on-boarding new-hires, and training employees more quickly and effectively.  In “The IBM Way”, former IBM marketing executive Buck Rodgers explains the approach his company adopted, “IBM begins imbuing its employees with its…philosophy even before they’re hired, at the very first interview…Basically, anyone who wants to work for IBM is told:  ‘Look this is how we do business…We have some very specific ideas about what that means.’”

By using the brand to inform, inspire, and equip people, companies produce a workforce that is aligned, focused, and motivated.  In turn such a workforce produces more efficient operations, higher quality output, and increased employee retention.

• A strong brand also optimizes your technology resources and other tangible assets by facilitating relationships with other companies from whom you acquire or with whom you develop these resources.  The greater your brand equity, the more desirable your company is as a customer or partner to these other companies.

Internal business processes and the resources which they draw upon are beneficiaries of a brand that is well-established and well-leveraged.

Make sense?

My next post will be the last in the series — Brand Value Creation — Learning & Growth.  Stay tuned.

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 brand 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.

Today I’m launching a short series on brand value creation.  My intent is to outline the ways brands create value, organizing the points by the four quadrants of The Balanced Scorecard.

But let me give you the background first.  The other day, a colleague* and I were discussing the role of marketing and the bad rap that marketing and marketers sometimes get.  We agreed that certainly some people misuse marketing, using it to manipulate and deceive; but on the whole, we believe that marketing is a good thing.  “Marketing is really a service,” my colleague affirmed.

The discussion got me thinking about the role and value of  brands — I firmly believe a strong brand is a good thing and actually have included a section in the first draft of my book about the value the brands create.  So I wanted to share my thoughts here and get your reactions and comments.

Because there are so many ways that a brand creates value, I’ve adapted The Balanced Scorecard, the performance management tool introduced 15 years ago by Robert Kaplan and David Norton, as an organizing framework.  I find The Scorecard serves as a helpful tool for identifying all of the areas of a brand’s positive impact.   In fact, examining the benefits of a strong brand across the four sections of the Scorecard — Financial, Customer, Internal Business Processes, and Learning and Growth – reveals how critical one is to a business.

Today’s post covers brand value creation from the Customer perspective (the next 3 posts will deal with the other 3 quadrants.)  The obvious impact brands have on customers makes the Customer quadrant of the Balance Scorecard the easiest of all to adapt to detail the benefits of a strong brand.

Generally speaking, brands help customers navigate the myriad of choices they face in today’s marketplace.  The average supermarket has 25,000 products on its shelves.   There are nearly 19,000 restaurants in New York City alone.   Americans have over 19,000 magazine titles  and over 115 television channels to choose from.

Here are a few ways brands simplify and facilitate purchase decisions, thus creating value for Customers:

• A strong brand gets people’s attention and puts specific products and services on their radar screen.  It helps customers find the product, service, store, or experience they’re looking for.  Plus brand awareness and familiarity alone have been shown to lead to brand liking.  As such, a brand can reduce the perceived risk of a new purchase simply by being well-known.
• Furthermore brands help customers edit their choices more easily and quickly because the associations people have with different brands help them differentiate between choices.  If, for example, you are looking for a nutritious cereal, you would look for the Total cereal brand; whereas a search for a fun, kid-friendly cereal would lead you to Cheerios instead.  You easily distinguish between these choices based on the associations you have with each brand.
• Providing reasons to buy is another way brands impact customers.  By embodying meaningful benefits that represent value to customers, brands encourage purchases.   In today’s economic environment, brands actually help customers justify their purchases — to themselves and to others. And in some cases, brands help justify paying more for something.

Some might accuse brands of having too much of an impact on customers, blaming brands for the over commercialization of our culture.  The counter argument says that brands serve as engines of our economy, driving business growth, improving people’s lives, and contributing to the progress of society. Net net, I believe the positive value created by brands for customers outweighs the negatives.

Check back in a couple of days for my thoughts on brand value creation from the Financial, Internal Business Process, and Organizational Learning and Growth perspectives.  In the meantime, I’m eager to hear your comments on how brands create value for customers.

* Thanks goes to Brad Bennett for inspiring the series — Brad is a dear, dear friend and former colleague (we worked together at Spiegel catalogs, which was my first job out of school!) Brad runs his own ethnographic research firm and is a valued strategic adviser to Kraft, Clorox, and other big brand companies.