Consumer brand value

Brands create value for the firms that manage them. Studies from valuation experts such as Interbrand find a strong correlation between brands which score well on consumer surveys in terms of awareness, performance perceptions, affinity and so on, also tend to be those which have a relatively higher proportion of intangible assets on the balance sheet. In other words, a strong consumer-facing brand tends to go hand in hand with more bullish estimates of future earnings potential.

The actual role of the brand within that process, is however, rather more ambiguous. A 2008 Interbrand/ANA study found that less than half of the Chief Marketing Officers and Senior Marketers surveyed claimed to quantitatively understand how their brand impacted on demand*. Clearly, a strong brand can enable the firm to charge a premium, sell more frequently to its customer base or gain an advantage in terms of market penetration. But perhaps more importantly, a strong brand gives an organisation a strategic focus, creating a virtuous circle in which clarity of purpose, consumer reaction and quality of product or service delivery feed into each other in a mutually reinforcing process. It is therefore no coincidence that the world’s strongest brands tend to be run by companies that are innovative, dynamic and generally really good at what they do.

Consequently it’s far from obvious how the contribution of the brand can be disaggregated from the firm’s overall valuation (although Interbrand and BrandZ amongst others offer credible methodologies for doing just that). In terms of managing and developing brand strategy however, a more useful starting point is the value of the brand to the consumer. Most brands consumer value will be derived from a ratio of functional and emotional benefits, which will vary across categories and individual brands. The recent explosion of brands that take advantage of network benefits (i.e. brands whose utility increases the more widely used they become), adds an interesting new dimension to the potential sources of consumer value.

This leads to a simple 2 by 2 matrix, which allows us to conceptualise the primary source of any brand’s consumer value.

The consumer brand value matrix

The top left quadrant of the value matrix is labelled fundamental: here the brand draws value from its quality or performance. A good example of a contemporary brand which is located squarely in this segment is Dyson, where the reason to choose the product is consistently articulated in terms of technological innovation. For example: this cleaner doesn’t lose suction or this cleaner is designed to corner easily. Whilst the owner of a Dyson may feel no little sense of satisfaction at having chosen a vacuum cleaner that performs well, it is from the fundamental performance of the product that the consumer derives value from the brand.

From Dyson, we can move across to the top right psychological value quadrant where the diamond engagement ring is located. Despite the now near ubiquitous use of a diamond ring as a symbol of love and commitment, it is a remarkably recent phenomenon. De Beers in the 1930s and 1940s both popularised the diamond through celebrity endorsement and some brilliant copy writing (A diamond is forever: Frances Gerety, working at N. W. Ayer & Son for De Beers in 1947), and controlled pricing by restricting supply. The ring itself clearly has pleasing aesthetic properties for the recipient, but that pales compared to its intangible symbolic value (which itself may to an extent be under-written by the two months salary De Beers recommended the groom spend on it.) Functionally the diamond engagement ring doesn’t have much going for it, however in terms of psychological attachment and reward, it is off the scale.

Prior to the emergence of Web 2.0 the incidence of network effects was too low to be of much concern to marketers. There was of course the telephone: a single phone is of no utility whatsoever, (not even to its owner), whilst near universal household penetration creates a service of more value to all users. Microsoft benefitted, and continues to do so, from the widespread take-up of the Office suite, because all users benefit from readily shareable document formats. However, more and more digital brands are benefitting from the universal value, which increases the more people use that brand. For example, from the individual consumer’s perspective the fewer people Christmas shopping in the West End of London, the more pleasant the experience. On E-Bay however, the more buyers and sellers there are, the better and more efficient the service becomes. By connecting together everybody, markets for the most arcane goods and categories begin to clear, increasing the value of the brand for all users.

Whilst E-Bay’s value to the consumer is essentially functional, other brands make use of the same network effects but primarily deliver consumers social value: Facebook being the prime current example. The more people there are on Facebook, the more customisable and complete individual users’ digital social lives can become. The consumer value of Facebook is the social interactivity it facilitates.

If we can be clear about the quadrant of the matrix from which a brand primarily generates its consumer value, then we have a crude but useful guide towards the way it should be managed and develop.

Understanding consumer brand value

Few brands will neatly fall into one of the quadrants on the matrix, however it is worth considering some of the factors that influence our categorisation of them. Many brands struggle to prioritise whether they are in the functional business of doing something for consumers, or whether they are in the business of unlocking an emotional response from them. Typically by building brand positions from a combination of functional benefits and desired emotional outcomes, the resulting definition or essence is necessarily compromised.

The unique selling proposition (USP), the singular focus on a unique (usually functional) benefit, is now widely regarded as an out-dated concept. According to Wikipedia (October 9^th 2010), “for all practical purposes, USP has all but died in the current marketing environment. Because of current technology, most ideas can be copied and brought to the market before it is communicate (sic) by the original manufacturer so USP has lost its generic relevance altogether.” This belief, in turn, encourages marketers to define brands in terms of psychological rather than fundamental benefits.

The current BMW brand position is joy. Whilst this maybe true for some BMW drivers, so they feel joy when driving their BMW, it certainly doesn’t help the firm prioritise its activities. BMW is in the business of designing and building quality motor vehicles; if the board genuinely believed they were in the business of spreading joy then one could anticipate a rapid diversification into comedy clubs, theme parks, holidays and so forth. Fundamental product benefits can certainly be expressed in an emotionally engaging manner, but this does not necessarily call for a re-categorisation of the primary source of the brand’s consumer value.

However, through a brave single-minded commitment to a compelling idea there are brands that have successfully subordinated their functional benefits in order to primarily define themselves in terms of psychological value. Unilever brands Dove and Axe do just that for their respective target audiences – but it’s worth noting the unswerving commitment both of these brands put behind their core idea. Certainly brands can play in the psychological value quadrant, but it’s not a territory for the faint-hearted or any organisation where the marketing team doesn’t hold significant strategic power.

The majority of brands do not benefit from any network effects – individual consumers use them and, hopefully, derive value from them. Meanwhile, the current technological revolution is unlocking social emotional value for the growing audiences of social media sites. Brands that do not generate network effects themselves, but which have a high proportion of advocates, are clearly set to be able to use social media as a communications channel – and this is obviously good news for brands in high interest categories.

Interactive campaigns for brands, which themselves, do not benefit from network effects are simply mimicking the superficial behavioural aspects of the world of social media – because more interactions with a brand will not increase its value for other consumers. So an fmcg brand can crowd-source creative work, encourage people to contribute their experiences of the brand to a website and so forth, which for certain brands, will yield more cost-effective communications strategies. However, fmcg brands do not benefit from network effects, so unlike Facebook itself, increased interaction around a brand property, even if that leads to increased sales, will not impact positively on their fundamental utility.

To conclude, the vast majority of brands can locate their primary source of consumer value in the fundamental quadrant. Despite the commonly cited argument that brands can no longer attain any sustainable performance advantages, those in the top spots of the current BrandZ 100 survey** including Google, IBM and Apple, certainly have a reputation for being exceptionally good at what they do. However, since the 1960s there has been a general trend towards articulating brands in terms of their psychological value to consumers. This shift has no doubt been driven by a number of factors: a lack of functional production differentiation (particularly in the fmcg category), the consumer’s increasing failure to engage with didactic advertising, the increasingly widespread use of tracking studies which readily afford psychological responses to be measured and even the advertising industry’s preference for more emotional creative work.

Despite these factors, there are still very few brands whose primary source of value to consumers is emotional. Rather, most brands engender a psychological response from the consumer because of what they are or what they do. Returning to the example of BMW, the brand’s long-held position, ultimate driving machine, makes far more sense than joy, because it is a clear reflection of the firm’s aspiration for their product. Having then experienced the resulting cars, it will prove impossible for driving enthusiasts not to then engage with the brand emotionally; nonetheless perceptions of fundamental product quality will underpin the emotional response.

Facebook, Twitter and E-Bay generate increasing amounts of consumer value through network effects – but most brands do not. It is worth distinguishing between Web 2.0 as a potentially useful form or peer-to-peer marketing for the majority of brands and as a fundamental source of consumer value for others. Failure to do so could easily result in losing sight of a brand’s primary source of consumer value. By going right back to first principles, we will create stronger, more compelling brands.

*Source: http://www.interbrand.com/Libraries/Articles/24_Interbrand_RedThread_pdf.sflb.ashx

** Source: http://c1547732.cdn.cloudfiles.rackspacecloud.com/BrandZ_Top100_2010.pdf