SMPL Q&A is a new blog feature, in which we interview our experts on all things relevant to branding, design and simplicity. In this Q&A, we speak with Brian Rafferty, global head of research insights, about brand ROI and a new research methodology that can help business decision makers fully understand the value of brand.
Why is brand value often considered an intangible asset?
Any marketer understands that brand holds tremendous value—the strength of iconic companies such as Coca-Cola or Apple is a testament to that. But, unlike other items on the balance sheet that can be assigned a dollar value—investments, liabilities, and the like—it’s difficult to assign value to the attributes associated with brand. How do you put a dollar value on consumer trust? How do you value reputation? Determining the value of brand is not as cut-and-dried as other assets. That’s not to say that many firms haven’t tried, with varying levels of “success.”
How has brand value been assessed?
Historically, branding firms have employed different methodologies, each of which has its weaknesses.
The earliest method consisted of expert analysis, in which experts scored a brand based on differentiation, clarity of communication, etc., and assigned a value coefficient to the brand based on those scores, its importance in a specific category and its market cap. The challenge with this approach is that it’s subjective and the methodologies are black box. Because of this, it’s easy to conflate many contributing factors.
The second methodology we can call basic equities, which measures brand awareness, usage and loyalty among customers. The challenge with this approach is that it often evaluates brands in isolation from their competitors—which overlooks differentiation. Further, data are often drawn from a broad sample that is not representative of a brand’s target buyer.
The third methodology we’ll call discrete choice, which asks customers to evaluate brands in a hypothetical purchasing scenario and aims to parse out the most important elements that drive brand preference. Though this appears to be the most evolved methodology, it typically doesn’t reflect the real-world scenarios a buyer might face. Instead, it presents the consumer with more information about the choices than her or she would normally possess. People often choose a brand based on their perception of it, rather than full knowledge of it.
The ultimate risk with any of these methodologies is that they’re not grounded in realistic scenarios, which leads to inaccurate valuations, which ultimate leads to costly marketing decisions (misallocation of funds and resources)
How is the way Siegel+Gale assesses brand value different from other methods?
Our approach is an evolution of the previous methods. We believe a brand’s worth is derived from its contribution to marketshare. Therefore, we focus more on a brand’s contribution to revenue, as opposed to brand value. Our methodology replicates the scenarios in which customers make decisions, and helps CMOs understand what role brand plays in customer purchase decisions vs. other factors such as product features or product price. From this, we’re able to derive not only precisely how much revenue brand drives for a company, but we can also ascertain the ROI of investing in brand initiatives, and understand how a brand contributes to the success of a particular company vs. a category average.
What are the benefits of this new approach?
There are a few.
- Creating that specific connection between brand and revenue gives CMOs a substantiated voice in the boardroom.
- It helps disaggregate contributing forces, which helps CMOs isolate, locate and evaluate opportunities to drive revenue, whether they be brand related or based on service or price.
- It gives CMOs a clear view of how a brand stacks up against competitors in its category—not just in terms of more standard metrics, but also in terms of contribution to revenue.
We’ve long held that any branding initiative should start from a solid fact base. It’s the only way to make truly informed decisions that lead to long-term value for your company.
Brian Rafferty is global director of research insights.