Second, building brand assets is no easy feat. Getting the brand vision right and then finding breakthrough ways to bring it to life ranges from difficult to impossible. And if the payoff is three to five years out, it is hard to convince executives that the performance is on track when the short-term financials are flat or declining, in part because convincing surrogates for long-term performance are hard to generate. As a result, even organizations that believe can find it hard to deliver.
Third, some organizations do not have a marketing capability in the form of people, processes, or culture, and therefore will be slow to accept the brand-as-asset view. This is more likely for organizations in BtoB or high-tech settings and for firms in countries like China, which have operated under the protection of a government and are focused on manufacturing and distribution rather than on brands. Executives in such environments are slow to accept the strategic quality of brands and find it difficult to allocate resources in that direction.
THE BOTTOM LINE
It is hard to overemphasize the importance of the brand-as-asset concept. In the history of marketing there are a few concepts that have truly transformed the practice of marketing. Mass marketing, the marketing concept, and segmentation would surely be named. But the “brand as asset” view of brands and brand building, although not always easy to implement, needs to be on the list as well.
Chapter 2
BRAND ASSETS HAVE REAL VALUE
Brand value is very much like an onion. It has layers and a core.The core is the user who will stick with you until the very end. —Edwin Artzt, former CEO P&G
Brand assets have real value. This assertion is critical to living in the new brand-as-asset world, with all its implications, from business strategy to marketing programs to the resourcing and management of brand building. But as branding becomes strategic and earns a seat at the executive table, the CEOs and CFOs of the world, who may have sympathy with the brand asset concept, will ultimately need proof that value actually exists. A conceptual argument will be part of the persuasion, but more empirical evidence may be necessary as well.
Investments in brand were easy to justify under the classic brand management paradigm, which focused on short-term sales. Brand programs either delivered immediate sales and profits or they did not. Building brand assets, however, may involve consistent reinforcement over years and only a small portion of the pay-off may occur immediately—in fact, in the short run brand building may depress profits. So the need is to measure long-term brand impacts or its surrogates. We have left the tactical world, in which short-term measures work.
There are a variety of ways that brand asset value can be demonstrated, including case studies, brand valuations, quantitative studies of the impact of brand equity, and the role of brand assets in conceptual business strategy models.
CASE STUDIES
A vivid, convincing, and memorable way to demonstrate brand asset value is to look at case studies. Look to brands that have undeniably contributed to the creation of enormous value. The Apple brand, for example, with its creative, independent personality and reputation for being a leading innovator, is a driver of one of the most valuable firms in the world. BMW has gotten traction in large part because of a brand defined around the “ultimate driving machine” and the self-expressive benefits that the badge lends to the driver. Trader Joe’s has dominated a subcategory with a brand that has crystalized a set of values and life-style that delivers both self-expressive and social benefits.
Consider also the value of creating a brand that is so strong it can survive business blunders that sometimes undercut the brand promise. Such brands can lead a come-back that otherwise would be infeasible. Apple had a down period in its product line and business performance before Steve Jobs returned in 1997, but its brand allowed the business to come back when the product problems were remedied and innovation returned. The same can be said about Harley-Davidson, which went through a period of quality problems and saw the brand lead the business back once those problems were resolved. AT&T, the leading communication brand for three generations prior to the 1980s, spent almost two decades shouting price and fighting service issues, and yet today it is still one of the strongest and most relevant brands in its category. These stories testify to the resilience and asset value of a strong brand.
Consider finally those brands that did collapse when managed badly, thereby losing enormous enterprise value. In the mid-1970s, Schlitz, the “Gusto” beer, was a close number two behind Budweiser when the firm decided to cut costs by using a yeast-centered brewing process, which cut the processing time from twelve to four days, and by replacing barley malt with corn syrup.1 Blind taste tests showed that the taste did not change. However, competitors were only too glad to talk about Schlitzes’ efforts to reduce costs. Their suggestion that Schlitz had compromised quality became very real when it turned out that the beer, after sitting on the self, would turn cloudy and lose carbonation. Schlitz returned to its old production method and ran blind taste tests during the Super Bowl to prove the quality was back, but customers had lost confidence in the brand and the thought of finding “gusto” by drinking Schlitz became a joke. The brand damage led to its virtual disappearance from the market and caused the business to lose more than one billion dollars in value. This story, and others like it, shows that even strong brands can be vulnerable to decisions insensitive to the brand promise and customer relationships.
THE ASSET VALUE OF A BRAND
Another approach to demonstrate the asset value of a brand is to directly estimate the value of its equity. There is a logical process that yields an estimate of a brand’s asset value, which can be helpful in demonstrating that brands are indeed assets and in showing how those brand assets are dispersed around the product-markets in which the firm is engaged.
Estimating the value of a brand starts with estimating the value of the product-market business units driven by the brand. The Ford Focus business in the United States, for example, would be evaluated by discounting its future expected earnings flow. The value of tangible assets (using either book or market value) is subtracted. The balance is due to intangible assets like manufacturing skill, people, R&D capability, and brand. These intangible assets are then subjectively allocated to brand and others. The key estimated number is the percent of the impact of the intangible assets that are due to brand power. This estimate can be done by a group of knowledgeable people within the firm working together or by themselves taking into account the business model and any information about the brand in terms of its relative awareness, associations, and customer loyalty. There might be disagreement as to whether a brand’s role is 20 percent or 30 percent but there are rarely arguments about whether it should be 10 percent or 50 percent.
The value of the brand is then aggregated over countries to determine a value for the Ford Focus worldwide and then, finally, aggregated over the other Ford products to get an overall value of the Ford brand. This value can be cross-checked with the market cap of the Ford stock and the percentage of the Ford company sales that is driven by the Ford brand.
The value of brands throughout the world has been estimated annually by Interbrand, Millward Brown, and others for well over a decade. In 2013, there were seven brands valued by Interbrand over $40 billion (Apple, Google, Coca-Cola, IBM, Microsoft, GE, and McDonalds). The one-hundredth most valuable global brand was valued at over $80 million.
Although the estimate of the brand value as a percent of the value of its associated business is not reported, the Interbrand data of 2013 implies that the percentage varies from 10 to 25 percent (for brands like GE, Allianz, Accenture, Caterpillar, Hyundai,