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.

Brand Premium of Team Canada & Why the Olympics Matter

So here we are- less than an hour away from what will likely be the most watched hockey game in North American history: Canada vs. the USA Olympic gold medal. The game will also likely be the most watched program in Canadian history. (Incidentally the record is held by Salt Lake City’s Olympic gold medal game between Canada and the USA). But this game has game some extras that make it special. First, and most obviously, Canada is gunning for gold of “the nation’s sport” right at home. Second, at the time that I am writing this, the USA has already won the most winter Olympic medal in winter Olympic history (granted there are more events than ever before but still…) and Canadian athletes have already done its $118 million “Own the Podium” program proud by delivering more gold medals to the host country than ever before in Olympic history. So this game- with the most profile event at the Olympics is a battle of the Olympic champions. Here are a couple musing on the game and the Olympics.

The Brand Premium of Canada’s hockey players.
In marketing there’s something called “price premium” measure of brands. Basically, you compare 2 equivalent brands’ pricing. The difference between the two prices is the perceived “brand premium”. For example, if you compare “Kellogg’s Corn Flakes” 575g ($4.99) to “President’s Choice Flakes of Corn” 575g ($3.99), you get a brand premium of $1 for Kellogg’s. The theory is that the Kellogg brand is worth $1 more. How does this relate to today’s game? I cranked out a few numbers, and the average Team Canada player makes around $3million more per season than the average player on Team USA. On a per game basis (assuming a player plays 84 games a year), that amounts to about $35,000 per player per game. If ice time is 18 minutes, that’s $2200 per minute. Remember, that’s not what the shift is worth- that’s the “brand premium”.

Why the Olympics Matter.
Olympics are so wonderful for a bunch of reasons: Olympics generate excitement about sport which in turn inspires kids (and kids at heart) to pick up healthy activities; Olympians are role models (most of the time) for gracious winning and defeat; and the Olympics give nations a healthy way express nationalism. By watching the Olympics, citizens of a nation root for their home country while at the same time are forced to realize the diversity of talent around the world. And for these reasons, I will always be a fan of the Olympics.

Why Spiderman and I love brands.

There's no doubt that brands are tremendously valuable. In his book, the Brand Gap Marty Neumeier lays out a calculation on Coca-Cola to show that the Coke brand is worth around 60% of the company's overall market value. For the record, the Coke brand is evaluated at just under $70 billion (Interbrand). Whether you're looking at Hermes, McD's, or President's Choice, you arrive to this conclusion: brands are among the most valuable assets that a company has. This even applies to business to business companies. Check out Intel or IBM's balance sheet and its very clear that there is a disproportionate value coming from intangible assets and brand. What is particularly interesting is just how valuable these assets are in aggregate. According to the Economist on Brands and Branding (2009), if you add up the value of Interbrand's Top 100 brands, you have $1.2 Trillion in value - equivalent to the 11th largest GDP in the world squeezed between Brazil (#10) and India(#11). That's a lot of economic clout. However, I don't love brands because they are valuable or powerful. The reason that I love brands is the same reason Spiderman would: Brands mean accountability and responsibility. As Uncle Ben told Spidey: "With great power comes great responsibility" and brands inherently can't shirk either accountability or responsibility. Let's look at a couple of examples.

Brands force accountability
Strong brands are underscored by favorable brand image (Keller, 1993). In other words, reputation matters. Have a good reputation and customers come back. Screw your reputation and customers flee. Since a brand (and its underlying reputation) is one of most valuable assets that a company has and since the brand can live forever, companies have every incentive to manage it responsibly. If it is not managed that way, accountability will be forced upon the brand.

In 2008, twenty two customers died from listeriosis after eating Maple Leaf meat products. (Government of Canada). Maple Leaf management responded quickly and ethically. They performed a product recall, improved production processes, and introduced new safety standards. (In addition they have also been dealing with the victims' families). In this example, Maple Leaf seemed to take the "carrot" approach to repair the brand by taking accountability for their problem. But, even if managers did not want to go the responsible route, the brand would serve as a "forcing mechanism" to impose accountability as we shall see in the next example.

Remember the Exxon Valdez oil spill in 1989? The Wiki version of the story is that Exxon oil tanker was on autopilot when the ship accidentally struck a reef. The result- the oil tanker drained about 40 million litres of crude oil into the sea - one of the worst environmental catastrophes of all times. Exxon executives were very slow in response, resistant in taking responsibility, and inadequate in clean up response. It appeared that Exxon executives wanted to shirk the responsibility of the clean up. Here is an example where the brand forced accountability. The public image of Exxon suffered (and still does today) and through the will of the people who demanded Exxon take responsibility for its damaging actions, the government took the company to court. To date Exxon has spent approximately $2 billion cleaning up the spill (and $1 billion to settle related civil and criminal charges). While not perfect, accountability is enforced on a brand even when the company is reticent.

This takes us to aninteresting irony. There's a segment of folks who paint brands with an "unethical behavior" brush. Some of them say we that ought to get rid of brands because they dupe the consumer, disregard laws, pollute, and cheat. What is ironic about this is that if you really want to stop unethical behaviors in business (or anywhere), you need to have accountability for transgressions. This is precisely what brands do. Ultimately, the most valuable and powerful brands are the ones that have the greatest incentive to be responsible - and have accountability enforced upon them.