The economic value of effective brand strategy

First published in the March 2014 UK edition of Accounting and Business magazine.

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In the first article in this series on marketing, we defined marketing strategy as: 'The process of deciding which markets to compete in, which customers to prioritise, and what customer value to target, and to decide how that will be delivered through products, service and the marketing mix in order to beat competitors.'

Within that process, one of the core concepts - separate from the Four Ps of the marketing mix - is the concept of a brand. So, as part of the process of building a marketing strategy, one needs now to look at brand strategy.

Brand Strategy

A brand is 'a name or/and design or symbol that identifies one product separately from its competitors'. Brand takes the natural differences between products and further differentiates these. Brands thus have a separate brand identity (that is how the supplier is trying to position them) and personality. To straightforward types like accountants this may seem to be a rather artificial concept. But the brand carries with it certain associations that seem to reach beyond the physical product.

Thus, for instance, if you drink a can of Coke you are not just consuming a fizzy, tangy, dark-coloured, liquid - you are also having a relaxed social experience. This is, in a way, analogous to the idea of 'spirit' in religion as something that exists but is outside immediate physical reality.

Brands need to be recognised to add value. This brings us to brand awareness, which is 'the extent to which a brand is on the radar screen of people'. For example, it is only a few years since Metro Bank started up as a new bank in the London area, with the goal of being a customer-friendly bank. Its brand message (what it stands for) is blazoned in its 'stores' (it doesn't have 'branches') as: 'OPEN 7 DAYS - early and late'; 'OPEN 362 days a year'; 'SATISFACTION GUARANTEED'; and 'We LOVE our customers'.

Metro Bank thus has very clear brand values - what it stands for and what you can expect to get from it. Here, brand values are 'those things that a product stands for that are reasons for buying it'. For example, a reason for buying a Honda-R is because the mechanics never seem to break down. But in the case of Metro Bank, it has a low or at best uneven brand awareness as it is best known in London, although that is changing.

Take another example - the healthy drinks business Innocent, market leader of smoothies:

• Innocent uses green electricity at its Fruit Towers headquarters
• Innocent sources fruit from suppliers that look after their workers and the environment
• all of Innocent's bananas come from Rainforest Alliance-accredited farms
• Innocent donates 10 percentage of all its profits each year to the Innocent Foundation.

Here there are much more specific brand values that encapsulate its relevance to the customer and give it a distinct competitive advantage.

These are classic examples of where a company uses symbolic means to generate distinctiveness and through being a 'first mover' (ie the first to occupy that competitive space). This is a major way of gaining what in competitive strategy is called 'unique competing space' - sometimes known as the 'sweet spot'.

Thus, in essence, brand strategy is 'setting brand identity with clear values and personality to gain awareness and recognition, acceptance and customer loyalty - with the ideal intention of gaining unique competing space'.

This should also lead to extending the brand to a number of products. Indeed, inspired in 2012 by hearing about the best-selling book of all time, which made product simply fly off the shelves at Ann Summers - the title sounded like a painting and decorating book - inspired me to do something similar.

I had created a brand of 'Demystifying…' in 2012 through my book Demystifying Strategy, and then had the idea to write a follow-up called Demystifying Strategic Thinking - Lessons From Leading CEOs. This used the 'Demystifying' brand umbrella to create two sub-branded products - that umbrella can now be used for others. There are likely to be incremental sales generated as readers of my second book will buy the first.

The moral here is that just because I am an accountant doesn't mean I can't come up with a brand concept. Brand strategy isn't rocket science!

Economic value

At this point we need to look at how all of this begins to turn itself into economic value. Brands represent considerable value first and foremost because they attract a price premium.

For instance, when I taught at a previous business school to Henley, a corporate client wanted to buy my programmes via that channel at a cost of £10,000 a day (at today's prices) - and that was even if they were held at their premises. Take away that channel and the cost would be quite a small fraction of that sum.

This feature is called brand equity or the extra price that is paid over and above a vanilla price because of the brand values, real and perceived.

If the accountant is interested in profit, return or economic value etc, then he/she should clearly be interested in the power of brands, as that does seem an easier route than many to superior wealth creation.

As was once said by the chairman of ICI Agrochemicals some 25 years ago when I was seconded there: 'Tony, did I hear you saying that making money in business is hard? No, the art of being in business is to learn not just to make money, but to make it easily.' Brands can make making money a lot easier.

Brand equity is notoriously hard to put an economic value on - as it is less tangible - but by no means impossible, whether you are Honda, Innocent or a business school.

The steps needed are:

1. to identify the discrete 'value pots' or 'value drivers' of the brand - those things that may generate incremental cashflow;
2. to take each one and identify the incremental competitive advantage and/or defensive advantage this brings;
3. to explore and test out its likely competitive duration or, if you can foresee a curve of decline in that edge, project what kind of shape that is; this needs to incorporate some view of what competitors will be doing and how the market is changing
4. to do a 'what if', given the intended investment in that brand and future cashflows over the competitive duration or 'period of competitive advantage';
5. evaluate these using discounted cashflow. 

Step 1 may break down into many elements (and not limited to these):

• incremental price premium - the 'premium value'
• adding value through increasing frequency of purchase or greater rate of consumption - 'volume value'
• protecting against lowering the price - 'protective value'
• avoiding loss of customers - 'loyalty value'
• providing a platform to launch new, more related products - 'extension value'
• providing a platform to launch new, less-related products - 'stretch value'
• encouraging unintended purchases - 'impulse-buy value'
• spreading and multiplying demand without effort - 'word-of-mouth value'
• the extra value that can be captured on exit if selling the business, as any buyer stands to generate both premium value and volume value through synergies - 'disposal value'.

Don't do anything silly to destroy brand value for tactical financial reasons. For example, recently I noticed a £50 phone bill from the Holiday Inn (trusted brand) for a 20-minute phone call. Apparently there was a little piece of plastic attached to the phone cord saying 'calls cost £2.49 a minute' - such a good way of ensuring that customers that miss it never return (sensibly they agreed to 80 percentage off).

Sometimes the value of the brand portfolio of a business can be comparable if not greater than the economic value of its core operations. As an accountant, help your board and your owners to realise that, rather than just thinking about shorter-term profits - as that is just a part of the value picture.

Think about which of these areas of brand value applies to your company. Are there other domains through which your brand can be exploited that you have neglected to think about? If you are looking at the value of your company, how much is generated by its brand equity? If you are a private company one day seeking an exit, how can you build that? What is the worth potentially to a new owner, and might that make the business worth more?

Dr Tony Grundy is an independent consultant and trainer, and lectures at Henley Business School