The “Value” of Brand
Nov|30|2009 Mark Gallagher and Laura Savard
Marketing and finance don’t always see eye to eye on the subject of branding (or should we say, the value of branding). Many creatives don’t fully understand the numbers and few finance people can quantify or qualify creative. These issues may stem from semantics, as each defines “value” quite differently.
Depending on whether you’re on the marketing side or the financial side of the business, branding is either viewed as an investment or as an expense. Those who see it as an expense, are unlikely to see returns, and those who can’t articulate the value that branding can bring are unlikely to attain a budget that is sufficient to carry out their claim. If your message isn’t being well received, it’s up to you to change the delivery—when talking to finance people, talk brand in financial terms.
For the purpose of this discussion, let’s avoid the higher level view of a brand being an experience, a promise, an expectation… and stick with a more pedestrian definition of brand:
A brand is both a marketing and legal device for differentiating goods and services. Where commodities are undifferentiated, interchangeable offerings (low margin), brands are considered unique and are legally protectable (high margin).
The above definition isn’t likely to receive a defensive response, because it defines brand as being the opposite of something financial people understand, a commodity. Now we can map that commodity and the brand, on a simple economic curve. This translates “brand” into economic terms, changing the question from “Does branding have value?” to “What is the value of X?”
So, while creatives may see brand as expressing unique and desirable benefits to a targeted audience to create preference, financial people see brand value as the premium consumers are willing to pay for a given product or service.
By aligning perspectives, marketing and finance can have the same conversation and determine appropriate budgets based on a common definition of brand and of success. After all, the differences are semantic. Both parties are essentially defining a commercially viable business as a high profit-to-cost ratio. The difference in viewpoint is how to get there.
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Thought provoking read as ever.
My view is that we should consider an alternative approach that views each customer as an individual business almost and treat those customers as individual profit centres. Because the customer really does define the success of the brand. And she doesn't do it by choosing brands based on their brand equity. So company attempts to 'value' the brand are redundant (although it may have a place when it comes to valuations but M&A are not on the radar of most companies and never will be).
As customers become increasingly demanding thanks to the tools that allow them to have almost instant fulfillment, brands that are successful will focus on immediacy, personalisation and other individual driven values. In other words, success will be determined by the brand's ability to incorporate, respond to, satisfy individual customer requirements. We're already seeing this with Mattel (Barbie dolls), Airbus (A380) and so on.
It may not apply to every company but then no branding rules do anyway.
Violently agree.
– Axle Davids
This seems to suggest that the economic purpose of a brand is to change the relationship between margin and volume. So that at a given volume a 'brand' can spin off more margin than a 'commodity'; conversely at a given premium a 'brand' can sell more thus increasing the overall contribution. Works on paper for the finance dude.
But why would people allow a new curve to be created in the first place?
If a brand is a proxy for information (as Chris Anderson suggests) then the transaction costs, search costs, discount for uncertainty all work in favor of a brand that has established itself as delivering to expectations. There is a premium for 'not thinking' which is why order of entry into a category is very important. The leader eliminates a lot of those hidden costs and thus reaps the benefits of market share.
Since decisions are made emotionally and then defended rationally; a brand could also be defined as an emotional short cut to a decision. This is where the creative side plays – aspiration, experiential, and fulfillment are all benefits that figure into our choices.
To the extent that marketing can understand how and why people make decisions then curve shifting is a distinct possibility.
Anthony,
Thanks for your response. You bring up a valid point. However, it is one we intentionally avoided. The purpose of this specific post was strictly to get marketing and finance to see eye to eye on the subject of branding. As we stated, “For the purpose of this discussion, let’s avoid the higher level view of a brand being an experience, a promise, an expectation… and stick with a more pedestrian definition of brand.”
Although, “Curve shifting” might make a good topic for a latter post. We’ll keep it in mind.
Cheers
Laura Savard
Brand Expressionist®