When it comes to assessing your brand’s value, should you focus on the tangible like sales and profit, or should you focus on factors that are slightly less tangible? In this issue of Insiders Corner, Peter J. Rosenwald, explains why it might be a little of both.
For insights into the future of retail, read Peter’s previous post here.
Insider’s Corner: Assessing Brand Value
There is no question that the greater the value of its brand, the greater the value of a company. The problem is determining that amount.
Sometimes the value is very positive, like Apple which has recently become a company valued by the stock market at more than two trillion dollars, a 17.7 multiple of its earnings. How much of this is a quantifiable value of that bitten fruit (represented by sales and profits) and how much is what famed investor Warren Buffet called “irrational exuberance” is a toss-up.
Only in the last twenty-five or so years have businesses and academics studied brand value and attempted, with questionable success, to formalize methodologies. On the side of the doubters, according to The Drum, “…when it comes to brand value, there is too much hot air in the balance sheets that is not guaranteed by any real value – you don’t need to be a banker to understand that this is a dangerous situation.”1
Measuring The Intangible
Put simply, brand value is often an illusion which would look good on a balance sheet when a company is to be bought or sold, if there were even a place for it there. That’s a debatable point, especially as accountants still argue whether or not brand value should be on the balance sheet at all.
Having spent my career almost totally in direct and data-driven marketing, my colleagues and I never paid much attention to the value of brands. That’s what the financial guys were doing. It always seemed too esoteric for us marketers. We had a much easier method which we practiced every day.
For us, the value of a brand we were marketing could be reliably determined by a simple test: if we offered a branded product in an A/B test against an identical but unbranded product at an identical price with identical advertising, by what percentage would the branded product produce a higher response – if it would? Similar tests would shed even more light on it.
It’s hard to argue that this simple difference is not a valid yardstick to measure a brand’s value. And since as reported by Investopedia, “Brand equity is an intangible asset since the value of a brand is determined by the perception of the company’s customers and is not a physical asset.”2 Not only the perception of its customers, but also the perception of its prospects as well I would argue.
The fact is that these “intangible assets” can be worth far more than the tangible ones.
Imagine valuing a publishing brand like Penguin. Which would you pay more for: the “tangible” value of the as-yet-unsold inventory of books in the warehouse or the “intangible” licenses and copyrights to publish the works of leading and best-selling authors in the publisher’s catalogue?
Value Is A Variable
As we know, the perception of a brand in the mind of a prospect purchaser is critical. It is the sum of all the advertising and marketing efforts poured into that brand over time. Experts caution not to equate perception with the reality of the product’s performance or safety or some other metric. The strength and value of any brand is not fixed. It is a variable, reflecting how the brand has registered with different prospect groups and varies dramatically across these different cohorts.
A Rolls Royce to some is the ultimate symbol of luxurious automotive excellence. To others, it is a sign of pretentious and totally unnecessary opulence. In a consumer’s brand choice, these “soft” psychographic characteristics are frequently as important as or even more important than “hard” facts or the consumer’s simple demographics.
That’s where the proverbial tire meets the road, so to speak, where brands and appropriate, relevant and specific prospect data come together. It’s the moment that can increase or decrease brand value to any given group. As we all know, the key to success is matching the promotional message to those people whose perceptions of the brand are most positive.
The Real Winners
Management guru Tom Peters said: “In an increasingly crowded marketplace, fools will compete on price. Winners will find a way to create lasting value in the customer’s mind.”3
The “winners” will be the ones who best match brand value to their customers and prospects.