It’s a well-established point that brand valuation is a core component of overall enterprise value. There are different arguments and methodologies on how it’s calculated, but no one disputes the fact that brand value is real and linked to consumer perception. Analysis of brand valuations like BrandZ show that up to 40% of a company’s net worth can be attributed to brand.
What we need is a closer look on how marketing and brand building moves the needle. What can we learn from brands who are doing it well? This paper will examine the impact that communications can have on brand strength and the concomitant impact on brand value and the communication landscape.
The product is dead. Long live the product!
It’s controversial, but true; the era of only talking about your product and its features to drive growth is coming to a close. Not that the relevance of products is diminishing, but the ability for just a new feature, design or model to drive growth is limited. Making that the focus of your communication efforts is even less productive. In fact, it has a negative effect on your brand strength and you’ll see some examples as you read ahead.
Evidence of how the digital domain has amplified consumer-centric dynamics is abundant in many platforms. The fundamental change driving this is the proliferation of information, especially peer led information via the internet. A glance at Tripadvisor shows this in action. All the communication from hotel brands, about their product and service claims, is put to test real-time when consumers report true conditions of room and experiences with evidence. And the chance to respond in the form of replies from managers, more often than not, is squandered with the use of templated non-replies. All of it is in full view of potential consumers who trust their peers more than brands.
The same dynamic is at work in other digital media platforms from blogs to online forums—without the brand getting a chance to respond. Conversely while a good product or service will also benefit from peer reviews, the amount of attention or references are generally much fewer than one driven by a bad experience.
Brand equity today is built and destroyed faster and more dynamically than at any point in the history of marketing—especially when it pertains to actual product or service claims. This means company value is literally built and destroyed in seconds.
Nintendo Go is a cautionary tale in this; its success drove Nintendo stock price up by 10% in just a day. When the market realized the game was built by another company, which would limit financial gains for Nintendo, the stock tanked by 18% in one session—the most since 1990! So how does a brand go about building equity in this environment?
Brand purpose drives brand valuation
To find the answer we looked at the data we had on hand from the world’s largest brand study—Brand Asset Valuator (BAV), measuring over 5,000 brands in Asia across major markets like India, China, Indonesia, Korea, Malaysia and Thailand. We looked at brands that have started conversations that go beyond their category to talk about things that matter to people and society. And sure enough, their growth in brand strength, an almost direct measure of brand equity, grew far ahead of the category itself.
Let us take the example of Tata Tea in India. For decades, the category had been dominated by communication that talked about the strength of the tea, freshness and other cost of entry features. To a large extent, it worked. Market shares remained more or less unchanged for major brands and all was status quo. Until Tata Tea decided that they needed the brand to talk about what mattered to the people of India.
This led to a campaign called ‘Jaago Re’ roughly translated as ‘Wake Up.’ It was a clarion call to Indians to wake from their apathy to corruption, misleading politicians and so on. They didn’t talk about tea leaves or show mountains or even mention that their tea was strong, just about the nation and what ails it with a single line linking to a product attribute of strength ‘Wake Up.’ It was the zeitgeist of the times. Over the years Tata Tea has remained true to this platform and spanned issues like urging people to vote, getting out the female vote across India and explaining the latest Union Budget in simple terms that anyone can understand. All of it has resulted in Tata Tea’s Brand Strength rising by almost 20 points, contrast this with the category performance where Brand Strength actually shrank by 2 points in the same period.
No, it’s not different in Asia
To be sure there are a lot of brands whose strength have grown by focusing solely on the product or service in Asia. But the truth is that with marketplaces becoming more crowded than ever, a brand that delays adopting a purpose and talking about it to people is missing out on the opportunity to add brand value.
And it’s not an isolated case. From Apple to Mahindra in India to Rinso (Omo) in Indonesia and Gap in China, brands have displayed this exponential growth in Brand Strength vis-à-vis the category when they talk about what matters to people rather than only about their products and services.
GenerationAsia, the world’s largest study of connected Asians covering over 32,000 people across 10 countries, confirms this. An overwhelming 65% of the people directly linking Brand Belief to Purchase Decision.
A breach of fiduciary duty?
Brand Strength explains up to 29% of premium pricing variance and therefore brand valuation. Brand Strength is also a great predictor of loyalty and preference with almost a 100% difference in growth rates of brands with High Brand Strength and those without.
So, any brand that continues to talk solely about products/features and services without a serious commitment to a purpose is missing an opportunity to grow brand equity and thus contribute to the value of the company. In financial terms it could be considered a breach of fiduciary duty by the marketing department.
Building enterprise value through brand equity is a fundamental function of marketing and there’s increasing evidence that the best way to build it is from having conversations that live outside just the product and service, about things that matter to people. It isn’t about choosing between the two, but rebalancing and using channel strategy smartly to allow the brand to represent its belief and let people invest more of themselves in the brand.
- Hari Ramanathan, Chief Strategy Officer Y&R Asia