Financial executives – especially in B2B organizations – often have a hard time justifying brand-building investments. That’s mostly because when marketing folks like us are asked to provide ROI calculations for the big bucks we request, we morph into deer in the headlights before their very eyes.
So what do we do? We cloak brand building in marketing execution expenses that the financial guys can wrap their heads around. Simply put, we expense it. Feeling wimpy yet? You’re not alone. But now it’s time to help your CFO understand the value of building brand equity and put it in the asset column where it belongs…because investment in assets and a solid valuation methods are things they can relate to.
Who Doesn’t Want Higher Business Valuation?
For many middle-market B2B companies, brand equity falls off the financial radar completely, mostly because there’s no official GAAP measurement formula for organic brand equity. In a survey of nearly 200 senior marketing managers, only 26 percent responded they found their “brand equity” metric very useful. That’s pretty sad, considering that some prominent marketing researchers believe brands are one of the most valuable assets a company owns. This is a measure brand and marketing managers should leverage in their stakeholder relationships.
Even in B2B, where “branding” is looked upon as something more suited for consumer products, brand equity can account for 5% – 20% or more of a company’s market value. And who wouldn’t want that (except maybe for that Cheerio-lobbing cherub who disses Jimmy Fallon on those Capital One commercials)?
In certain industries, increasing customer loyalty by 2% can impact the bottom-line in the same way as a 10% reduction in costs (The Market Research Executive Board, “Measuring Brand Equity”). The report continued to cite that a composite of companies with brands considered by business leaders as “superior” grew 402% in the 1990s while the Dow Jones Industrial Average rose only 308%. And if that tidbit doesn’t cause pause in your CFO, toss this one at her: research finds that companies with the largest gains in brand equity generated an average current-term stock return of 30%, while companies with decreases in brand equity lost 10%. This is the kind of cred bean counters need to begin viewing brand as an investment instead of an expense.
What is brand equity really?
Brand equity trends are a good barometer overall brand health. But much like measuring the happiness of hippos, no single, comprehensive, industry-wide definition for brand equity exists. If pressed for a broad definition, brand equity essentially addresses the financial value that a brand’s identity, persona, and emotional appeal add to a product or service. It’s less about function and more about the customer experience and relationship. It all comes down to RAPPORT.
“Emotional value” is a pretty squishy thing to measure in financial terms, but it is undeniable that even in B2B, emotional attachment is a powerful issue. Though it may be expressed on different levels than B2C, people are still involved in the decision-making, influencing, and purchasing processes. And where there are people, there are emotional attachments.
The bottom line is…well, the bottom line…meaning that even if a brand has an emotional connection with its stakeholders, differentiation in the marketplace, high awareness, and easy accessibility, but not sustainable sales and margins; what’s it worth? This could be one reason why many B2B financial folks hold limited regard (and approve fewer, smaller budgets) for supporting this “phantom asset” than in B2C.
The flaws in most approaches to B2B brand equity measurement are their overemphasis on marketing factors and diminished emphasis on business, financial, and operational efficiency factors. After all, equity is a financial concept, so brand equity measurements – especially in B2B companies – should be less about the marketing aspects and more about the business and financial impact, right? One hitch: Marketing folks are more comfortable identifying and measuring brand equity drivers (marketing factors) that are great for prescribing ways to improve the financial equity of a brand, but not so good for measuring the equity. See the difference?
A Scorecard Just for B2B Brand Equity
To provide measurement of brand equity specifically for middle-market B2B brands that balances the marketing (external) and financial (internal) dimensions of the brand, I’ve crafted a scorecard that balances the two. The scorecard framework is based on the perspective that brand and business objectives always work hand-in-hand, because neither would exist without the other (if you believe that brand is a relationship with stakeholders). Another point to keep in mind is that the scorecard metrics are not meant to be used as isolated snapshots, but rather assessed in trends, taking the measurements at different periods over time and watching the delta and direction. This trending approach averages temporary influences and favors long term outlooks for valuation and predictive modeling.
The Devil’s in the Details
Dimension: The aspect of the brand to be measured
Eight select business and marketing dimensions of the brand are identified from a balanced “branded-business” perspective
Internal/External: Categorizing each metric as internal or external
Internal factors are things that can be controlled internally, such as setting pricing, aligning people, or switching operational processes or investing in specific capital equipment. These are business metrics. External factors are controlled by forces outside the brand organization. They include factors such as media, marketing, events, economics, etc., and affect the dimensions of external culture, awareness, and preference.
Loyalty is a bridge between internal control factors and external control factors because the organization (internal) has control over loyalty programs, but customers (external) are ultimately the ones who control the loyalty score. These unique qualities make loyalty a very powerful indicator of brand health because they provide an ultimate measurement for the faithful delivery of the brand promise.
Metric: The specific measurement for each dimension
1. Financial: Price premium and positioning over median category pricing
This is a traditional brand equity measure. One caveat: Make sure the category is segmented very carefully (whether you are valuing a product or corporate brand). Price premiums can skew heavily either way if the category includes competitive alternatives or substitutes positioned off your target. If you’re valuing a corporate brand, you can quantify corporate perceived price positioning by using a “basket of brands” approach against the market median pricing of an equivalent basket for each competitor. This is an internal metric because the B2B brand has control over its pricing.
2. Operational: Operational alignment score
Operational alignment occurs when the operational aspects of an organization and its people are all in alignment with the brand strategy. This means that everyone in a line position knows what to do on a daily basis in their jobs to support the brand’s delivery to its customers. This often combines elements of the corporate and product brand strategies. Operational alignment is not given much credit in the brand equity spreadsheet, but it can dramatically reduce costs in many ways. This is an internal metric because the B2B brand has control over its operational investments, processes, and policies.
3. Efficiency: Employee/customer brand delivery alignment score
Brand delivery is a brand touch point metric that assesses the alignment of stakeholders’ beliefs of what the brand delivers to them, above and beyond the functional aspects of the product or service. When employees and customers share the same understanding of what the brand is delivering (attributes beyond the functional), a brand is well aligned. When operationalized in every employee and customer group, this metric can pinpoint areas of misalignment, leading to clues for significant improvements in customer satisfaction. This is an internal metric because the B2B brand has control over setting and meeting customer expectations.
4. Loyalty: Net Promoter Score
The Net Promoter Score (NPS) is a measure of customer advocacy and evangelism. Essentially, it measures the percentage of branded customers who actively refer a brand within their personal and professional networks. High NPS has been related to strong brands and sustainable financial success. This is a hybrid internal and external metric because the B2B brand and the customer each have some control over loyalty.
5. Awareness: Brand awareness score
Brand awareness alone is a measure of marketing success and not necessarily financial success. But combined with the other metrics in this scorecard, it can help drive financial success. This is an external metric because awareness is a customer perception factor.
6. Recognition: Logo/packaging
Brand recognition is an important dimension that helps quantify not only differentiation, but also the degree to which a brand cuts through the noise of the modern marketing landscape. It is an external metric because it is customer perceiption-based.
7. Preference: Market share trend
This metric is a traditional bell weather and helps round out the competitive success of the brand. This is an external metric because it deals with the external market competitive milieu.
8. Cultural: Buzz metrics (segment or industry)
Social media has made “buzz” an undeniable part of our brandscape. Measuring resonance with brand positioning amidst current socio-economic trends is another facet of awareness, but includes richer customer positioning connotations. This is a purely external factor because it is in the control of customers.
All metrics should be expressed in percentages and averaged together for a composite score. Each or any of these factors can be weighted to accommodate specific industry peculiarities.
Once you begin treating your brand investments like investments instead of expenses, you’ll be surprised at how much more confident you’ll be in your brand budget discussions.
Contact GroPartners Consulting for guidance on how to measure your B2B brand equity, either corporate or product. 847-845-6970