This article originally appeared on Quirk’s.
By the buy
Few marketers would question the value of a strong brand. The strength and valuation of iconic companies such as Apple and Coca-Cola are evidence of the importance of brand as part of a company’s offering. But assessing the financial contribution of brand – as well as the return on investing in brand – has remained elusive. From generating greater customer loyalty to increasing employee innovation or ultimately bringing in more revenue, the power of brand is strong.
Despite these benefits, the financial contribution that accrues to brand is frequently disputed and often misunderstood by many C-suite executives. That’s not because assessing brand contribution or brand value is impossible. It’s because traditional models attempting to assign a dollar value to brand simply do not reflect the buying scenarios customers face when choosing among brands or they do not appropriately assess the importance of brand against other factors in the purchase decision, such as product features and pricing.
As the idea of brand moves from words and pictures to the totality of a customer’s experience, making brand ROI tangible is critical for CMOs. Not only does a fact-based approach and monetary value help in prioritizing new brand initiatives, it clarifies branding strategies to a C-suite that does not inherently understand brand contribution in the same manner it may understand sales or R&D. In a world where everything is measurable, accurately assessing brand contribution is now a necessity.
Placing a monetary value on brand isn’t a new concept. Expert marketers and research teams have attempted to quantify the ultimate value of brand and the ROI for branding initiatives for years. While these methodologies have evolved since the first generation of efforts, none has really mirrored how brand is manifested in the buying process – the point at which financial value is truly realized. The chart shows a brief summary of popular methodologies used in the United States and their shortcomings.
While it is easy to see the challenge with the first generation of brand valuation – literally, a bunch of people in a room assigning values in a potentially arbitrary manner – other methods may still seem appealing. But the limited focus of the basic equities approach doesn’t account for market share and discrete choice methods will either force respondents to answer based on knowledge they wouldn’t normally have or obscure the actual reasons they prefer one brand over another.
Other approaches to calculating brand ROI exist as well. In Europe, where brand value can be put on a company’s balance sheet, some practitioners take more of an accounting approach to valuation. But once again, the role of brand in the buying decision seems to be either ignored or not properly ascertained.
Role in the purchase decision
Consider instead an approach that computes the contribution of brand by deriving the role it plays in the purchase decision. This method is data-driven and incorporates the perceptions only of those who influence the actual purchase decision. In B2B settings, the methodology is best employed when based on the perceptions of specifiers, end-users, etc., rather than purchasing agents who may have a very limited field of interest regarding the product or service being acquired.
The methodology largely mirrors the actual buying process. It allows different decision makers to have different consideration sets – both in terms of what brands are in the consideration set and how many brands comprise it. In addition, the research does not ask decision makers how they make choices. This will almost invariably lead to the conclusion that price is the primary driver of buying decision. But how many categories can you think of where the price leader is the market leader? Very few indeed, because this is not how we tend to buy. Rather, we are taught to say we are price-conscious (not value-conscious) and it makes us look responsible if we make it clear that we look to save (or at least not waste) money. In reality, apart from disqualifying a brand because its price is so far out of scope, price typically plays a relatively small role in most decisions.
The fact is that decision-making tends to be a subconscious process rather than a conscious one. As a result, we are unable to accurately relate how we make these decisions. The new methodology recognizes this fact and derives how decisions are made – and the extent to which perceptions of brand affect them – through two pieces of information that individuals can provide consciously. This information includes perceptions of alternative brands with which they are familiar and an exercise in which decision makers express preference (and strength of preference) in head-to-head settings – the way that actual buying is done.
Some of the advantages the approach has over previous generations of solutions are:
- It focuses on the role of brand in purchase decisions, thereby reflecting the key source of revenue.
- It is derived from actual buyers in the category, not professionals sitting around a table or the general population.
- It is based on buyers’ perceptions of the products/services they are purchasing rather than dictating to buyers what each offer comprises.
- It considers all elements that buyers consider: brand, product/service characteristics (e.g., quality, durability, warranties, etc.), price, etc.
- It is derived in a competitive element, realizing that the contribution of brand depends on perceptions of competing brands as well.
- It mirrors the actual buying process by accounting for the fact that different decision makers have different companies in their consideration sets.
B2B financial services
We recently applied this new methodology to evaluate the contribution of brand in B2B financial services, a category where its impact is often overlooked. We surveyed more than 200 respondents, consisting of institutional and corporate decision makers – CFOs, treasurers and heads of finance and asset management executives – on their perceptions of and preference for brands in the space, enabling us to derive the role brand plays in their buying decision. The report found that brand plays a significant role in winning business, representing nearly one-third of how business is won. Based on the total category revenue, this finding is consistent across each industry category:
- For investment banking, brand contribution to new business wins totaled 26 percent.
- For corporate and commercial banking, brand contribution to new business wins totaled 28 percent.
- For asset management, brand contribution to new business totaled 30 percent.
This example might lead one to think that brand automatically contributes between 25 percent and 30 percent. This is not the case. For example, in categories that are both commodity-like and characterized by heavy advertising, we have seen brand contribution exceed 60 percent. In contrast, in situations where the decision is mission-critical or life-critical (e.g., certain medical devices), brand can contribute less than 10 percent.
There is an interesting relationship between brand contribution and simplicity; institutions that provide simpler experiences are capturing more revenue from their brand than those that do not. As a brand’s simplicity score increases, so, too, does brand contribution: investment banking (26 percent brand contribution – 825 simplicity score), corporate and commercial banking (28 percent brand contribution – 833 simplicity score) and asset management (30 percent brand contribution – 930 simplicity score).
Ultimately, this methodology enables marketers to put a true dollar value on brand based on a more rigorous, revenue-based approach. It can even be used to prioritize branding initiatives relative to other investments from a brand ROI perspective. By testing price, offering and brand alongside each other, we can determine the most (cost-) effective strategy to drive revenue and set accurate KPIs that account for all areas of the business.