This blog originally appears on CMO.com.
As CMO of strategic branding agency Siegel+Gale, I am frequently asked to dimensionalize the business case for brand investment.
While many marketers intuitively recognize the benefits of investing in brand, it can be challenging to draw a direct line between the power of brand and its impact on business. Recent years have seen a number of different studies attempt to quantify brand’s financial contribution to a business while continuing to support qualitative judgments on the positive impact of brand.
Brands have evolved beyond a single logo and a tagline to serve myriad other purposes. Customers engage with brands on an intimate level of individual experience. Though the nature of brand’s expanding functions renders it difficult to assess, a variety of sources return evidence to support the notion that the power of a strong brand is more compelling than ever.
Today, the impact of brand is not limited to marketing metrics; it can be felt in business outcomes. It is therefore imperative to elevate the brand discussion to the strategic realm and evaluate it via strategic metrics. Below, I’ve compiled multiple studies with perspectives on brand value, brand valuation and brand investment.
Brand Investment: Driving Corporate Value
Admired brands have a well-documented ability to raise company share price.
The Economist reported data assessing the power of brand value and brand valuation, asserting, “Brands account for more than 30% of the stock market value of companies in the S&P 500 index.” Additionally, in a survey conducted by the World Economic Forum and public relations firm FleishmanHillard, “Three-fifths of chief executives said they believed corporate brand and reputation represented more than 40% of their company’s market capitalization.”
Additionally, a McKinsey & Company study revealed that brands with strong reputations generate 31% more return to shareholders than the MSCI World average.
Brand value is closely tied to a company’s reputation. A powerful brand works to enhance reputation, serving as a promise while also acting as a kind of insurance when a company is unable to deliver on this promise.
Often, when a brand with a strong reputation makes a misstep, brand can mitigate against damaging effects. Further, strong brands have an easier time launching and driving adoption of new products. Kasper Ulf Nielsen, an executive partner at the Reputation Institute, said, “People’s willingness to buy, recommend, work for, and invest in a company is driven 60% by their perceptions of the company and only 40% by their perceptions of their products.”
Additionally, brand strength enhances company performance. A customer’s loyalty and advocacy for a brand are other powerful business outcomes of successful brands. A Siegel+Gale study found that 69% of consumers are more likely to recommend a brand because it provides simpler experiences and communications. A strong reputation is both an input and an output of brand investment.
Similar to its reputational benefits, brand can also have a significant impact on trust, which in turn generates positive business outcomes.
Edelman’s 2016 global trust barometer indicates that 68% of customers chose to buy products and services from trusted companies, 59% recommended these companies and 38% defended the companies they trust.
Trust is built through consistency, a tenet of successful brand management. Companies that invest in delivering exceptional brand experiences and communicating thoughtfully produce positive associations around each customer touchpoint with the ultimate benefit of winning buyer preference and loyalty.
Commanding a Price Premium
Often the impact of successful branding is the ability of the company to raise prices.
According to investor Warren Buffett in an interview with the Financial Crisis Inquiry Commission, “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10%, then you’ve got a terrible business.”
Siegel+Gale’s Global Brand Simplicity Index study indicates that brands that provide remarkably clear and unexpectedly fresh experiences garner greater customer loyalty and increase revenue. The same research revealed that 63% of customers are willing to pay more for simpler experiences.
A company with a strong brand boasts more engaged employees and typically finds it easier to hire, motivate and retain talent.
Purpose is an integral part of brand, hence, brand value. A definitive statement of the difference an organization seeks to make in the world, purpose is a powerful internal tool that provides employees with a clear, credible and compelling response to a fundamental question: “Why do we do what we do?”
According to his book GROW—How Ideals Power Growth and Profit at the World’s Greatest Companies, Jim Stengel, former CMO of Procter & Gamble, asserts that an investment in a portfolio of firms driven by purpose and values would have been 400% more profitable than an investment in the S&P 500.
Purpose has tangible internal repercussions because it improves employee engagement. Gallup’s 2013 Global Workforce study reveals that a mere 13% of people in 142 countries reported they were engaged while at work, while nearly a quarter reported they were “actively disengaged.” The study reported that work units with the greatest employee engagement ranked 10% higher on customer ratings than the units with the least engagement. Additionally, according to a study conducted by the Corporate Leadership Council, purpose translates to the bottom line: A company with engaged employees grows its profits three times faster than competitors.
Connecting in B2B
Brand is an important asset for B2B companies as well. The old adage, “No one ever got fired for buying IBM” speaks to the power of brand to sway enterprise purchase decisions.
According to a McKinsey & Company study, enterprise organizations now view brand as a “central rather than marginal element of a supplier’s proposition.” The study revealed that B2B companies with robust brands perform 20% better than companies with weak brands.
Siegel+Gale’s B2B branding research confirms the influence of brand value on enterprise buyers’ decisions. In fact, B2B decision-makers are 10% more likely to consider brands that the general public knows and feels connected to. The top 10 connected brands studied demonstrated a 31% greater growth in revenue from 2010 to 2013 than the 10 least connected brands.
Brand, a Worthy Investment
The perspectives above move beyond traditional marketing metrics to investigate and quantify the business outcome of brand investment. In addition to the abundant qualitative evidence and strong intuitions of seasoned CMOs, today there is more evidence than ever to support the notion that brand has substantial impact, hence, value.
Interbrand’s “Best Global Brands” and Millward Brown’s BrandZ rankings further support the notion of the competitive lift that brands bestow upon organizations.
Abundant qualitative records and many studies support the case for brand investment. Strong brands encourage employee engagement, enable higher pricing, increase share value, expand market share and secure lasting customer loyalty.
It is clear from the many different approaches of the studies above that—no matter which way you cut it—brands drive value.
Margaret Molloy is chief marketing officer at Siegel+Gale. Follow her on Twitter: @MargaretMolloy