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What Brand Believers Know That You Don’t

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Long before digital marketing started to suffocate emotional creativity in favor of unnecessarily complex, performance-based blindness, my agency presented a TV spot for a high-end audio brand. We were excited. We had a powerful concept, and we recognized its potential to drive sales and build long-term brand equity. We presented the animatics and passed out the production budgets. It was a stroke of luck to get an in-demand film director to bring our concept to life; getting this guy was a rare opportunity. Acting talent was critical, and we recommended some great actors at double scale.

We explained that this additional investment in talent would significantly enhance the impact of the spot and help cement the brand in the hearts and minds of its audience, not just for now but for the future. After all, we were emotionally connecting and building long-term love for the brand. We went on to say that consumers can smell quality and attention to detail, attributes that directly haloed their brand. They were all about quality, and the market would know if we short-changed the execution. It would reflect poorly on the perceptions of the brand and its products. The extra investment would serve them well in the future. The conversation went like this:

Client: “How many more audio systems will I sell if I use this director and we hire double-scale talent?” 

Agency: “We can’t say.”

Client: “How will I measure the incremental return?”

Agency: “Well, you can’t. Building equity and realizing its return takes time. So we won’t be able to measure the specific return immediately, and we can’t tell you the difference if you hadn't invested more in the execution.”

Client: Then how do I explain this extra spend to the CEO?

Agency: Ask your CEO, “What are long-term loyalty, advocacy, and brand preference worth to you? Do you value people having a positive emotional relationship with your brand? Do you believe in investing in filling the funnel for future sales, in your company’s sustainability? Or do you only care about immediate cost-per-conversions?”

Client: Is this a trick question?

Well, yes and no. These questions are endemic of something much bigger — a complete lack of commitment to brand as a means to drive performance and value across all business functions. The client evaluated spend against conversions, not building brand. They did not consider the extra investment for its ability to contribute to equity and value, or its long-term implications. Their culture did not connect brand strength and equity to market performance and long-term success. The client was a non-believer working in a culture of non-believers. It is a misjudgment we see all too often.

Non-believers will understandably always ask these questions: “Why should I invest in something I can’t account for on my P&L? What will my brand be worth in hard dollars if I invest in brand? And if I don’t? If I budget XX on maintaining and growing my brand equity, how much more revenue will I realize net of spend? Exactly how much more will my company be worth if I invest in my brand”? 

It comes down to this: It takes both knowledge and belief to invest in something you can’t immediately measure. It takes leaders who are students of branding and its benefits, people who genuinely get it. It takes believers, brand believers. While the financial return on strong brand equity is historically documented and undeniable, answering these questions has never been simple. Because brand value cannot be adequately reflected on financial statements, most C-Suites see brand investment as an expense, not a requisite cost of building a business. 

Big mistake. 

Give Me Proof

In 2019, Forbes Marketing Accountability Initiative, in conjunction with the MASB (Marketing Accountability Standards Board) published a comprehensive report in an attempt to prove the value of brand. The report is replete with data, value chains, charts, and proof points on the financial returns of strong brands. Their goal was to identify valid ways to measure brand's contribution to a firm's financial performance and share price. Accounting stuff. While the report unequivocally reinforced the financial value of brand, it readily admits that: “the measurement of brands and their value remains a complex topic to explore, with many divergent points of view”

In other words, valuing brand is a tricky, non-standardized financial accounting experiment, at best. Most brand analyses are annualized exercises done to determine enterprise value at a specific point in time. None of the methodologies do anything for companies looking to evaluate brand and positioning to inform brand investment decisions to accelerate performance and value in real-time. None can quantify “what if I do” vs. “what if I don’t.” And none truly consider or calculate for a wide range of intangible attributes like preference, salience, relevance, loyalty, advocacy, or brand love — attributes that play a dominant role in increasing sustainable performance and value.

While woefully inadequate in incorporating intangible brand attributes, the study still concluded that yes, in fact, brand and intangible brand strength have a dramatic and significantly positive impact on financial value for every business; that a strong brand benefits the entire enterprise — its value, its market performance, and its people. Building brand is the key to sustainability and long-term success. 

The report concluded that while significant progress has been made on developing a standardized accounting methodology for valuing a brand and its equity, they are still unable to do so with any sort of consistency. But they know it has real, tangible value.

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In summary, the study found that: Strong brands create significant value; it's just that your CFO can't tell you how much value you’ll get or when. Current financial reporting standards reward short-term investments against short-term metrics – KPI’s that destroy more long-term value than they create. The report goes 30 pages deep on various ways to measure brand with several very complex mathematical formulas that made me dizzy. None of these approaches provide quick, actionable brand evaluations that can inform everyday business or spend decisions. CEOs want to know how their brand equity informs strategies and tactics to optimize their performance and value right away.

Brand Believers

Given the challenge of reporting immediate financial returns of investing in brand, successful high-performing and high-value companies are inevitably lead by brand believers. These leaders intuitively and intellectually understand how a strong brand impacts every facet of their organization. They know the benefits are far-reaching. Smart leadership recognizes it is nearly impossible to identify and isolate the cash flow and income attributed specifically to brand. They just know a strong brand drives differentiation, performance, and value. And long-term success. They are brand believers.

A great example of the power of being brand-driven is AmEx and its changed perspective on its call centers, a critical customer touchpoint. Instead of viewing them as a cost center, call center engagement with customers would now be considered an investment in its IP – its brand. AmEx eliminated the focus on the single biggest driver of cost — call duration. Instead, the focus shifted to a brand-driven approach for customer engagement by focusing on authentic brand engagement and support with no constraints. The result? A 400% increase in customer retention. This was a strategic decision driven by a brand-centric operating philosophy by a leadership that understands the immense value of brand equity and how to build it. AmEx is a brand believer.

The truth for most businesses is that leadership must believe and consciously decide to be brand-driven and then bake it into their company’s DNA. They must recognize that their brand is IP unique to their business and comprises a wide range of intangible attributes that create preference and future demand. As with any IP, it must be maintained and protected.

What Believers Know

  • Strong brands with good reputations have 31% better total returns to shareholders.
  • As of 2020, intangible assets comprise 90% of the value of the S&P 500 Companies.
  • Corporate sustainability and long-term success is directly linked to brand equity.
  • 32% of all consumers will walk away from a brand they love after just one bad brand experience.
  • Underinvesting in brand building diminishes the brand equity needed to sustain sales in the future. 
  • Companies with high brand strength capture 3X the sales volume of average brands and can command a 13% price premium.
  • People’s willingness to buy, recommend, work for, and invest in a company is driven 60% by perceptions of the company and only 40% by perceptions of their products.
  • 50% to 90% of a company’s total value is attributable to factors other than tangible assets. Non-financial assets account for 35% of institutional investors’ valuation of a company. 
  • Brand is an organization’s largest intangible asset, making up 20% of its market capitalization value.
  • Brands that build positive customer sentiment by being meaningfully differentiated positioning are 4X more likely to grow their share value than those that don’t.
  • A 14-year McKinsey study revealed that top-ranked brands outperformed the world market as measured by return to shareholders by 74%
  • Strong brands have lower employee turnover,  greater employee satisfaction, and higher employee productivity.

What Believers Do

  • Believers manage their companies from a brand-centric operating philosophy; they know their brand is IP and a core business asset that requires investment.
  • They bring a brand-driven focus to the C-Suite, and the Board. They make “brand” part of the value creation conversation.
  • They invest in brand by properly balancing brand-building spend (60%) with activation spend (40%) to drive both near-term results and long-term sustainability. They understand the impact of these decisions on future success.
  • Believers know that brand values and directives must be pushed down from the top. They lead by example. They make attention to the brand fundamentally part of the culture.
  • They align the management team with this operating philosophy and imbue and empower employees to extend and fulfill the brand's values and promise.
  • They understand brand-building as a necessary cost of doing business, not a discretionary line item that can be cut. Building brand equity and value is an always-on, 360˚ endeavor.
  • They demand that every point of brand touch and customer engagement properly contributes to building brand equity while aligning with positioning and business objectives.
  • They continuously consider brand impact for all strategic, tactical, and operational decisions. 
  • True believers commit to building brand from day one and maintain that effort consistently over time. This is how the big money is made. It takes belief, vision, and patience.

Humans are emotional beings hugely impacted by the intangibles of brand. As reported by Forbes: “Over the past half-century, we have witnessed a somewhat silent revolution in terms of what factors are really driving business valuations. As the global economy has gradually shifted away from an industrial base and focused more on services and knowledge, enter the age of intangible assets as an increasingly vital component of corporate worth.”

For general businesses, both B2B and B2C, this shift has driven the rise of brand-centric operating philosophies across all categories. For private equity and venture capital, building brand equity has become a critical best practice for maximum value creation. Better late than never.

Be a brand believer.

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