Thursday, October 13, 2011

The 5 Most Difficult Branding Decisions #3 Measuring the Brand

Let's recap our countdown of the Top 5 Most Difficult Branding Decisions.

#5 Branding a Late Entrant
#4 Branding the Boring
#3 Measuring the Brand

Whenever I teach a brand course, I like to ask the question: How valuable are brands? Pretty much every undergrad, MBA, manager or exec jumps on the “brands are valuable” bandwagon. Some will cite some famous quotes from business titans like Warren Buffett: “brands are economic castles protected by unbreachable ‘moats’ (Kuper, 2008) . Others will comment how 2/3rds of Coca-Cola’s value is brand-based. Still others will make the case that brands create the bulk of worth for business to business brands like GE.

So then I follow up “If a brand is so valuable, what is a brand anyway?”

A lot of product managers (or those schooled in product management) discuss brands in the context of “a differentiated product”. Academically trained brand managers tend to provide an answer like “a brand a network of meaningful associations linked to the brand name in the customer’s mind”. I’ve heard accountants say that “a brand is a pretty good proxy for ‘goodwill’ on a balance sheet. Finance folks view the brand as an asset to leverage financially. Many senior executives talk about a brand to be acquired or sold. Directors of charities view brands as drivers of accountability. Ask 10 managers from different departments that question and you’ll likely get 10 different responses.

So who’s right?

Here’s the thing. All those responses are correct. A brand is all of the above and more. Brands function at different levels (consumer, product, and firm levels), have several different dimensions (awareness and loyalty, for example),and have dollar value impact on the organization. Where this gets especially tricky then, is measuring the brand.

In one of my papers, I developed a thorough taxonomy of brand measures. I scoured pretty much every academic journal, book, and professional magazine to find any way that brands can- and are being measured. But, I also went beyond that. In one of my studies, I approached brand guardians (VP marketing, brand manager, global brand managers etc) directly to see how they measured the brand. I found lots and lots of measurements – some that measure the brand, some that measure part of the brand, and some that don’t really measure the brand at all! The thing that was so surprising was just how imperfect even the best measures are. This is hardly surprising because what is a brand is is so hard to pin down.

Let’s look at a couple of the highest profile brand measures that approach brands from opposite ends of the spectrum.

On one extreme there is the Interbrand approach, made famous from its annual Business Week “The Top 100 Global Brands”. This approach is great for dollar valuing the firm level of a brand- and this makes it attractive to CFOs or CEOs who are viewing the brand as a balance sheet asset. Think of the measure this way. A brand’s value is estimated on the basis of projected profits discounted to a present value. The discount rate is a subjective rate determined by Interbrand and Wall Street equity specialists and is a function of the brand’s risk profile, market leadership, stability and global reach of the brand (Chu and Keh, 2006). Intangible assets like patents are subtracted to assess what portion of the earning are due to the brand alone. Qualifying brands must be publicly traded, have at least 1/3rd of revenues outside the home country, and not be a purely business-to-business brand (Interbrand 2011).

There are lots of reasons why this is a cool measure (you can benchmark your brand against the best-in-class brands, for example) and lots reasons why this measure is so tough to use. I’ll just comment on a couple points. First, most brands aren’t publically traded so for a non-public company, a forced hypothetical “market cap” would be required to execute this measure and figuring this data point out is not simple to do. Second, the folks in organizations are more interested in finding out the value of product level brands (e.g. Tide and Crest ) than the firm brand valuation (e.g. P&G.) It is incredibly complicated to get to the dollar level product level using this type of measure.

On the other extreme is what I call the Keller model. In the Keller metrics, measures are taken at the consumer level. The idea behind it is that brands with high levels of awareness (ie familiarity) and a strong, favourable, and unique brand image (as defined by strong, favourable, unique associations)have high brand equity. So to uncover the associations in the consumers’ minds, a bunch of tests like free associations, in-depth interviews, and projective tools are administered, and then scaled to validate. It’s time consuming, costly, and requires lots of brand-specific expertise to do this.

The Keller approach is a preferred choice for hard-core marketers because it helps the managers compare the brand directly to competiors. Uncovering associations is also a great diagnostic tool too. If you track the brand over time and you see association favorability slipping, then you can take action to reconstruct the associations. That being said, there are lots of problems with this type of brand measure as well. I’ll highlight a major one here. Consider the CMO of Coke using this approach to measure the brand. The outcome of his study would provide a series of word associations. So, the CMO from Coke, comparing his customers’ associations of Coke to customers’ brand associations for Pepsi, would see near-identical consumer associations (Silverman, Spott, and Pascal, 1999) leading to the conclusion that Coke and Pepsi have similar levels of brand equity. Yet, an Interbrand measure will evaluate Coke’s brand at around $55 billion more than Pepsi’s. Which takes us to the obvious point- are they really measuring the same thing?

So what does all this mean to a brander? Brands are multi-dimensional, hard to define, and can be costly/time consuming to measure. Then there is the added complexity of measures not jiving with one another. Having said that, there are a few ways to remedy the measurement challenges. Using multiple measures is one- which increases cost and complexity. I designed Brand Mojo as a key piece to remedy these (and other) brand measurement issues. But for the manager who realizes that the brand is the most valuable asset that she has, the brand ought to be measured so it can be managed. This is not an easy thing to do and for this reason it is #3 on our list of the Top 5 most difficult branding decisions.

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