Introduction

Our first fundamental premise: Brands are the most valuable assets that a corporation owns. Brands are the key source of sustainable competitive advantage. Brands are the ‘invisible hand’ of management, leading employees to do the right things. Top management understanding of the company’s corporate, product and service brands and how they create value is the key to long-term success. If a company has weak brands, it is automatically at a competitive disadvantage – price competition and cost cutting will dominate management thinking and actions; employee morale will suffer.

On the other hand, strong brands allow the owners to exert more control over margin and/or share in their targeted markets. Strong brands provide a platform for efficient new product launches. Strong brands reduce marketing and selling costs per sales unit. Strong brands, managed correctly, create pricing and margin advantages in the near term, build and protect near and long term enterprise market value for stakeholders including investors, owners, employees, suppliers, and the community.

We believe brands should dominate the thinking and actions of those charged with improving long-term stakeholder value.

Brands are the one defensible long-term asset a company owns. Competitors can quickly replicate your product or service performance. They can meet or beat your prices. They can match your channels and enter any market they wish. In today’s globally competitive world, there are no naturally stable or protected markets.

If one accepts our premise, then it spawns a fundamental shift in the way corporations are led and managed. Decisions are driven by what improves the brand asset value of the firm. Assessing how investments will improve the total value of the firm’s brand assets drives investment priorities. The inevitable financial trade-offs that corporate managers face become driven by a different question: “How, and by how much, will this investment improve the asset value of our brands?”

This, in turn, directly impacts the way the stock market values public companies, and the way private companies are valued as well. This book will show the role that brands play as intangible assets, how intangible assets are becoming a much greater share of a firm’s market value, and how investors associate brands with a firm’s intrinsic market value. In fact, we show the role that brands play in helping investors assign P/E multiples when they value a stock.

At this point, you’re probably thinking something like: “If you guys are so smart, why haven’t we seen this happen already?” The answer is simple. Brand asset value is not reported by any of the numbers you have available in the corporate suite. Although brands clearly influence unit sales, profitability, cash flow, and ultimately, stock price, none of these numbers can be partitioned to reveal the specific contribution of the various component parts of brand value – those intangible assets that accountants just can’t seem to measure and report.

That leads us to our second fundamental premise: Only when the asset value of brands can be measured, will they be effectively managed to improve stockholder value. That is the underlying centerpiece of this book – a framework for brand value measurement that will allow senior management to understand and rationally invest in brands. And once that begins to happen, most corporate processes will need to become realigned and corporate leadership will have a new way to focus the entire organization on improving stakeholder value. Measurement will legitimize the role of brand as organizing principle for the enterprise.

When corporate leadership focuses on building brand asset value, the entire organization is affected - not just marketing, but also sales, human resources, research and development, finance, customer relationships, and distribution. Sales personnel and front-line contact personnel are hired and evaluated based on their alignment with and contribution to the brand. New product development is driven by the concept of brand value creation and enhancement. Financial resources are allocated based on their contribution to enhancing brand asset value or on building new brand platforms. Customers are segmented into groups based on their alignment with, and perceptions of, brand value. And channels are supported based on their alignment with the brand’s promise. In a nutshell, a focus on brand asset value is a focus on corporate leadership. We call it Values-Based Leadership.

This book establishes the framework for developing Values-Based Leadership. We identify the issues and provide a solution – one that we know works. We will provide a measurement system for assessing and reporting brand value and brand equity, show you how to implement that measurement system, and how to use it to lead your firm into a full-court focus on improving brand asset value, and therefore long-term stakeholders’ value. Along the way, we show you proven methods for creating and improving brand asset value, and segmenting customers to enhance growth and profitability. We’ll show you how to avoid the 20/80/50 rule - 20% of your customers generate 80% of your profits, and the remaining 80% of customers cut those profits by 50% or more.

How to use this book

Of course, we would like you to read the entire book. But recognizing that not all audiences are keen on investing that amount of time, here is a quick primer based on your perspective.

We believe everyone one should read Chapters 1 and 2 – they set the stage and provide the vision of what we think can be a revolution in management focus. In those two chapters we identify the problem and set the framework for the solution.

Chapter 2 begins a parable that tells the story of a CEO who is in trouble – and the issues at hand. It introduces the role of using outside resources to help diagnose the problem. It suggests many of the ideas that will prove successful. While this chapter is fictional in form, it contains a powerful story.

Chapter 3 is a review of elements that comprise a brand, and terms associated with brand. This chapter is a basic primer on brand. However, it also introduces new ways of thinking about what a brand is, and the role of brand. A particularly good chapter for non-marketing people. If you are really up to speed on those topics, skip this.

Chapter 4 makes the case for brands as key assets of the firm and provides the rationale for tying brand asset value to asset values as the accountants see them. We recommend you read this chapter. If you want to better understand the link between brand value, market value, EVA and stock price – this chapter is for you.

Chapter 5: Value Creation/Value Destruction demonstrates on a more granular level how brand value is created and how it is depreciated or destroyed. Here we demonstrate how management actions can grow strong brands into powerhouses of profitability. We also demonstrate how misalignment of values can severely depreciate a brand’s asset value over both the short term and the long term. The relationship of Brand to the Business Model, Values (based on Discipline of Market Leaders), Quality, and LCV (Lifetime Customer Value) is discussed. There are plenty of examples. Everyone should at least cruise over this chapter.

In Chapter 6, The Current State of Brand Value and Brand Equity Measurement, we establish the criteria for a comprehensive brand value measurement system then discuss several of the more popular measurement systems and why they aren’t meeting the criteria. It’s not necessary for all readers, but certainly worthwhile if you are currently using any kind of a brand value measurement system.

Everyone should read the first half of Chapter 7 – Understanding Brand Value and Brand Equity. That’s where we establish how a brand creates value (brand value) and equity (brand equity), the definition of each term, why they are different, and why they are important to the firm and its shareholders. We introduce the conceptual (and visual) model of total brand value and its component parts, including brand equity We continue this chapter with the conceptual framework for measuring the components of total brand value, including brand equity, and demonstrate the model – including how to use the information for pricing.

In Chapter 8, Brand Loyalty and Brand Performance, we more deeply explore the connections between Brand Value and Brand Equity, and how they work over time to create loyalty among customers, employees, and suppliers. The chapter addresses the salient differences between attitudinal loyalty and behavioral loyalty, and the implications for brand performance and value creation.

Chapter 9, What is Branding? This chapter discusses branding - the process of creating and maintaining a brand as a corporate asset. The chapter expands on some of the precepts introduced in Chapters 4 and 5 in terms of a quality-based process. It discusses some of the realities of controlling the branding process. We also look at how branding standards are set and who sets them. The ‘Who’, ‘What’, ‘Why’, ‘Where’ and ‘When’ of Branding are examined. The process of continuous improvement (CQI) is compared to the Branding process, and discussed as a template for that process. It’s a “must” chapter for the serious reader – anyone in a leadership, management or advisory position.

Chapter 10, Brand Success Profiles, presents real-life examples of successful applications of some of the principles we have discussed in previous chapters. We examine how the organization’s values create brand value and equity, and where appropriate, the key drivers of the equity. This chapter reinforces what we have covered, bringing many of the lessons ‘to life.’

Chapter 11 addresses Values-based Market Segmentation. One of the most powerful questions every enterprise should ask and answer is: “Who should be our customer, and why?” We demonstrate how derivation of the Brand Value Model naturally leads to a powerful values-driven segmentation scheme. We show how that segmentation scheme is superior to any others for deeply understanding market structure and uncovering your best target markets. We also discuss a powerful choice simulator for ‘what if’ scenarios. We think this chapter is really important for effective strategic implementation of Values Driven Management.

In Chapter 12, Leveraging the Brand Value Model & Brand Performance, we discuss practical ways to apply measures of brand performance to different audiences – senior corporate leaders, chief financial officers, senior brand managers, the sales force, and employees. We tie the metrics to share of choice, pricing premium, share of served segments, and Economic Value Added (EVA). This chapter is primarily for the implementer of the program.

Related to Chapter 12, and contained in the Appendix, we also provide the technical details of how to conduct the research and analysis to derive the Brand Value Model, as well as some of our more technical definitions. The Brand Value Modeling Addendum is intended for the marketing research specialist and the economist that may be charged with developing the model.

Chapter 13: Salient Lessons for Marketing Service Providers, discusses ‘how to’ apply the lessons discussed in the rest of the book for service firms. It includes requirements and pitfalls to be aware of in a service provider organization, including ad agencies, pr firms, and professional services firms. If you’d like to be viewed as a ‘trusted advisor’ to your clients,, read it.

In Chapter 14, Implementing the Branding Process, we visit some of the practical issues that impact the application of branding practices within most companies and organizations. ‘Pull Thinking’ is reviewed. The roles of HR, IT, Sales, Marketing, Customer Service and Finance are discussed. CRM and SFA are discussed. Internal branding to employees is addressed. Examples are provided. This chapter is of particular value to CEO’s in terms of ‘harmonizing’ the various departments of the enterprise under values-driven leadership.

Chapter 15, The Solution, is the companion parable to chapter 2. We lay out the steps that are necessary to begin applying the ideas in the book. The framework begins with an assessment of the culture of the organization and its values, then extends out to the brand and branding structure in terms of positioning and discipline, then the organizational levers (segmentation, recruiting practices, compensation, recognition, communications, training, etc.), the operating results, and finally, the financial outcomes. A must read if you are serious about implementing our approach.

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