Marc Fischer explains common methods of brand valuation. One of the problems he highlights is that there are so many methods — different companies have their own proprietary valuation systems. He groups these into three main approaches; a cost-based approach, a market-based approach and an income/DCF-based approach.
A cost-based approach determines the value of a brand according to its inputs. When it costs more to create then the brand is more valuable. “While cost-based measures are attractive due to the objective and easy collection of data, they are heavily criticized for their theoretical weakness.” (Fischer, 2016, page 187). The problem is that there is little reason to think that what it cost to create a brand is a good proxy of brand value.
A market-based approach suggests that what people will pay is the value of the brand. “Unfortunately, there does not exist a liquid market of brand transactions” (Fischer, 2016, page 187). In essence the market-based approach is theoretically better but very hard to deploy as we don’t really have many market values to use for comparison.
An income/DCF-based approach values a brand based upon a projected stream of cashflows that arose because of the brand. Again this is great in theory but challenging to do in practice. Even if you can accurately project the future cashflows of a firm how do you decide what percentage of the cashflows will arise only because of the brand? “Major concerns exist about subjectivity and uncertainty”. (Fischer, 2016, page 187).
After outlining the problem Fischer offers his own valuation system. No system is perfect but with so many people working on valuations let us hope that they continue to improve.
Read: Marc Fischer, 2016, Brand Valuation in Accordance with GAAP and Legal Requirements, In Accountable Marketing: Linking Marketing Actions to Financial Performance, Edited by David W. Stewart and Craig T. Gugel, Routledge, MASB
Jim Meier, (an executive at MillerCoors), is an expert on getting marketing and finance to work together. He has written a fascinating chapter on the problems of doing this. The portrayal of marketers through the eyes of finance people is amusing, if sadly true. Marketing is seen as being “..fraught with subjectivity, murkiness, and fluffiness” (Meier, 2016, page 152). Meier worries that what marketers measure is often quite divorced from financial outcomes. Even if the measures used are useful, “the trail goes cold before it reaches a true financial destination” (Meier, 2016, page 154). In return finance people are seen as having a “lack of understanding of what truly matters” (Meier, 2016, page 153).
After outlining the problems Meier explains what actions were taken at MillerCoors. One idea was seeding finance people throughout the organization. Allowing these distributed finance staff, “mini-CFOs”, a chance to better understand what will help other disciplines perform their roles. MillerCoors is even examining the possibility of valuing brands periodically to better highlight the effect of decisions on these hard to measure intangible assets. These assets are crucial to the success of a firm like MillerCoors but can be missed if one concentrates only on numbers that get reported in company financial accounts.
To be clear it isn’t just finance people that need to change. For marketers understand and influence finance decisions “does necessitate that the organization take steps to “financialize the marketers” but not to an extreme in which they are converted into de facto accountants.” (Meier, 2016, pager 163). The point is a good one, to influence finance decisions it is not enough to plead for finance people to understand marketing, marketers need to try to understand finance. It is a tough challenge for the discipline but one that I think/hope will be very worthwhile.
Read: James Meier, 2016, Creating a Partnership Between Marketing and Finance, In Accountable Marketing: Linking Marketing Actions to Financial Performance, Edited by David W. Stewart and Craig T. Gugel, Routledge, MASB
V Kumar (the editor of the Journal of Marketing) and student Sarang Sunder have undertaken a review of the use, and potential use, of Customer Lifetime Value (CLV) in the Consumer Packaged Goods (CPG) industry. They talk about the problems that CPG marketers have when attempting to focus on their customers. The firms need to know, “… what is the value of a customer? How can it be measured? Also, how does [CLV] apply to the CPG industry?” (Kumar and Sunder, 2016, page 69).
The authors outline a number of different ways that have been used to assess customer value. All have challenges, for instance, Share of Wallet, Tenure, or Past Customer Value. They argue that CLV, given it is forward looking, has benefits over other “metrics” that assess merely historic data, as historic data shows what the customer has contributed not what they will contribute.
The major challenge in the CPG industry is the lack of contracts. CLV is more easily applied to cell phone contracts, cable bills, and other regular contractual and pseudo contractual relationships. In CPG industries it is often hard to know if a customer is still a customer. If the customer didn’t buy dishwasher detergent this week have they ceased to be a customer of their regular brand or have they simply got enough detergent already at home? Additional complications, such as customers buying competing products on the same shopping trip provide further methodological challenges for those estimating CLV in the CPG industries.
I particularly valued the author’s clarity over the forward looking nature of CLV. This means that only “future marketing costs” matter. “Marketing costs refer to the costs of campaigns, in store promotions, coupons, deals, and other discounts that are provided to enhance relationships, and encourage customers to make purchases with the focal brand.” (Kumar and Sundar, 2016, page 72).
CLV can be a helpful way of considering customer value. The CPG industry is one where CLV has notable challenges so it is useful to have advice on the application of CLV to this industry.
Read: “Customer Lifetime Value and Its Relevance to the Consumer Packaged Goods Industry” by V. Kumar, and Sarang Sunder, in Accountable Marketing: Linking Marketing Actions to Financial Performance, 2016, Routledge, MASB
One of marketing’s greatest challenges is that the benefits of marketing activities are often long term. Such long term benefits can be very tough to measure especially when lots of other activity is happening at the same time. For an analogy think about eating more vegetables, this is likely to be good for your health but the effects are uncertain and long term. Plenty of people don’t eat enough vegetables because the benefits are hard to assess yet the nasty taste of Brussel Sprouts is very easily assessed. Marketers thus have an interest in providing evidence of the long term benefits of their work. Dominque Hanssens of UCLA has put together a review of the evidence for the long term impact of a specific type of marketing — advertising. He notes six effects broken into two broad types of three effects.
“The first three – immediate effects, carryover effects, and purchase reinforcement – are primarily a result of consumers’ response to advertising and the product. The remaining three – feedback effect, decision rules, and competitive reactions – depend on corporate behavior, specifically organizational learning and the development of better advertising and marketing practices.” (Hanssens, 2016, page 97).
Consumer response is what one might typically think of as the impact of advertising. Immediate effects are the most obvious result of adverting. Consumers see an advertisement and buy. Carryover effects are simply effects that happen later. Purchase reinforcement helps retain customers.
Perhaps less obvious is the impact on corporate behavior. The feedback effect, raises advertising spending in the future because of current success which can be of benefit to the firm. (It is the equivalent of feeling better from eating your vegetables and so eating more vegetables). Decision rules are the impact of advertising on other elements of the marketing mix, the benefit the firm gains from its advertising that allow it to, for example, reduce price promotions. The final factor is competitive reactions, sometimes advertisers gain from competitor reactions, e.g. increased advertising, which enhance the category, e.g., “oh yes I must buy some detergent”. This can help all players in the industry.
Advertising’s impact goes well beyond its simple immediate effect. If marketers are to make better informed decisions about advertising spending we need a better idea of its full effects. Hanssens helps to provide more detail on this.
Read: “What is Known About the Long Term Impact of Advertising” by Dominque M. Hanssens in Accountable Marketing: Linking Marketing Actions to Financial Performance, 2016, Routledge, MASB
A major problem in marketing is that one often has only a general idea of what another marketer is speaking about. “Unfortunately, marketing still does not have that commonality of terminology” (Farris, Reibstein, and Scheller, 2016, page 46).
A marketer will talk of loyalty and we know that this is a good thing but what precisely they mean is often unclear. Do they mean repeat purchases? (These may be driven largely by availability). Do they mean a positive attitude towards the brand? (Which may have no observable effect). Or even willingness to recommend? (The recommendations may never be listened to).
What marketing lacks is a shared language. We may all be sharing interesting points but if the listener isn’t sure what exactly is being said it is hard for learning to take place. This leads to the conclusion that marketing needs is a common language. A dictionary where you can look up the definition of terms. You may not agree with a marketing colleague, but if they use a common language you at least know what they mean.
MASB have taken on the Common Marketing Language Dictionary project to supply a shared resource of definitions. They are providing definitions to common marketing terms, having started with relatively uncontroversial ones a few years back they are now progressing onto more challenging tasks. They are concentrating on operational definitions and not concepts or constructs. The operational definitions are at a more concrete level, they can be measured, whereas constructs are more general ideas at a higher level. Thus, loyalty will not have an operational definition but repeat purchase rate can have. When a marketer talks of loyalty one can ask, how do you plan to measure it? If they say repurchase rate, you will know what they mean.
To my mind this is critical work. MASB still have to “convince editors and reviewers of academic journals and business publications to refer to these dictionaries” (Farris, Reibstein, and Scheller, 2016). When I review I plan to argue for commonly used definitions.
Read: “Marketing’s Search For A Common Language” by Paul Farris, David J. Reibstein, and Karen Scheller, in Accountable Marketing: Linking Marketing Actions to Financial Performance, 2016, Routledge, MASB
Charles Duhigg’s book are always entertaining. The central thesis make me dubious but the stories are full of interesting observations. This is true of Smarter, Faster, Better.
I’m not a fan of some of the literature at the basis of the book so it would be a bit tough for Duhigg to fashion something that appealed to me from it. The stories however nicely illustrate a key points. The discussion of the making of Frozen helps show how the film got turned round into the megahit that it is today. The big changes in direction also may explain some of the puzzling plot twists that didn’t really seem to be properly foreshadowed. (That said I found the story of the doomed airline a bit much, I didn’t need to hear quite so much about it).
He has some interesting suggestions. He describes how “team leaders at Google make checkmarks next to people’s names each time they speak and won’t end a meeting until those checks are roughly equal.” (Duhigg, 2016, page 70). I think this advice could be useful, if you have a problem with some people always dominating discussions. That said there are obvious problems if team members really have nothing to say. You wait for them to make some irrelevant comments. Furthermore, some people are less talkative than others naturally and may feel nervous about being made to speak. Forcing them to say something for the sake of it seems a bit much.
The general point is that I’m all for good ideas to try, we can definitely be inspired by what others do well. That said people and teams differ. What works for you in one situation, what works for Google, won’t necessarily work for you in another situation.
Why not read Duhigg for fun stores and some ideas of things to try. That said I’m yet to be convinced there are secrets to being productive that you can apply off the shelf.
Read: Charles Duhigg, 2016, Smarter, Faster, Better: The Secrets to being Productive in Life and Business, Doubleday
Academics have an important role to play in political discourse. We have time to try to rid ourselves of bias and use appropriate evidence. It is therefore disappointing when academics miss doing this as Avril does in her assessment of the British Labour Party under Tony Blair. In terms of bias much of her language seems deliberately provocative. “This strategy was particularly visible at the party conference where the New Labour managers used all the tricks in the book to ensure that there would be no damaging platform defeats.” (Avril, 2016, page 8, my italics). She is saying that party managers tried to avoid damaging rifts and limit negative publicity, i.e. do their jobs, but this is described as using tricks.
Turning to evidence quotes from clearly biased sources, i.e. passionately anti-Blair, are presented as conclusive statements. Importantly, even if the evidence were actually representative a major problem remains, we can conclude little from much of the evidence given. Some “evidence” seems true but it is not clear what exactly it shows. Apparently party managers described formal meetings “as excruciatingly boring and not an activity in which any sane member of the public would want to engage” (Avril, 2016, page 8). Were party managers actively subverting local democracy or just being honest as such meetings really can be excruciating boring?
Other evidence is asserted to be proof of a problem when it is not necessarily the case. Take, for example, the observation that Tony Blair “was eventually forced by a distrustful parliamentary party to step down at a time which was not of his own choosing” (Avril, 2016, page 9). This is given as evidence that Blair’s use of party management failed. Let us assume for the sake of argument that this is true, that Blair couldn’t have hung on longer. The problem is that this evidence is simply not diagnostic. No prime minister in the last forty years has gone at a time of his or her own choosing. Given this Blair’s “failure” is common to all prime ministers. Yes, his party management did not prevent what seems to be an inevitable end but we can’t say that the party management was “mainly self-defeating” (Avril, 2016, page 5). Perhaps Blair would have had to go sooner without his use of party management.
Read: Emmanuelle Avril (2016) The (Unintended) Consequences of New Labour: Party Leadership vs Party Management in the British Labour Party, Cogitation, Volume 4, Issue 2, pages 5-14
The Heath brothers, Chip and Dan, have an entertaining style and together they have generated a number of readable, informative popular psychology/business books. I enjoy the books and generally agree with a lot of what they say. The brothers do run into the problem facing a lot of “practical books” — they feel the need to be definitive to help the reader take action. Sometimes I wouldn’t agree with their recommendations and don’t find the support that they present for their strong conclusions totally convincing. Furthermore, sometimes their use of concepts is a little loose. Like many writers they throw around the term rational which isn’t at all well defined. That said such books have an ability to share useful concepts and ways of thinking.
The one concept that stuck with me from Switch was the acronym, TBU. Much of the analysis done is “””TBU”–true but useless” (Heath and Heath, 2010, page 28). This captures a lot of academic research but also, to my mind, covers a lot of analysis at work and in life in general. I have sat in too many meetings where people have established facts which everyone in the room agrees with but these facts are completely irrelevant to any action that can be taken. “If we had more time we could do this” is said when no time is available. If you can’t do anything about something why focus on it? This is especially true in politics when the state of the world is regularly decried with like minded partisans but the same partisans often have no practical ideas on how to improve things.
In business meetings when a team member says something that is completely accurate but there is nothing that can reasonably be done about it why not try the TBU acronym?
Read: Chip Heath and Dan Heath, 2010, Switch: How to Change Things When Change Is Hard, Random House
Tension often arises between the political and administrative aspects of government in a democracy. Elected politicians set the strategy and this should (ideally) reflect what the voters want. Administrators, e.g., civil servants, carry it out. The problem is that there isn’t always a clear line between good administration and political choice. In political communications this problem is very clear. Government communications need to explain programs but it is easy for this to become boosting the government of the day and spending public money to brag about any parties’ achievements seems inappropriate.
Alex Marland in Brand Command reviews the problem of government/political communications focusing on the “Harper Government” — the Conservative administration under the leadership of Stephen Harper that until recently ran Canada. Marland provides an even-handed analysis and often points out that many communication choices can be seen as simply effective administration. Centralization of authority in the Prime Minister’s office may be a concern to many observers but having different ministries haphazardly launch competing initiatives is hardly a problem-free solution. Some centralization of control is surely necessary but how much is too much? Some professionalization of communications is good to convey effective messages and ensure cost efficiency but when does this become Orwellian? The book is packed with interesting examples letting the reader decide when centralization goes too far.
There are also important practical details about communications in the book. For example, just how much attention to detail is needed in managing political brands. Anyone who has worked with event management people knows that they have an irritating attention to detail. The reason why is shown in the story of John Turner’s devil’s horns. The Canadian prime minister in 1984 spoke in front of a sign with a couple of forks that when he was photographed appeared to be devil’s horns protruding from his head. The problem of unfortunate accidents only increases in a era of cell phone cameras and greater access to information. The conclusion is that, “Even minor back-ground gaffes must be avoided lest they are mocked in social media.” (Marland 2016, page 312).
Read: Alex Marland (2016) Brand Command:Canadian Politics and Democracy in the Age of Message Control, University of British Columbia Press.
Measuring the value of any brand is a huge challenge. Even the best methodology available is far from perfect (and many would argue I’m being too generous in that assessment). There are, however, a number of significant potential benefits if you know the value of your brand. Most obviously you have a better idea of your firm’s value. Furthermore, understanding the value of a brand can potentially allow for better informed investment decisions. The basic idea being that you need to estimate how much brand value you will create in order to assess whether investments in creating brand value make sense.
There is relatively little work on understanding how managers actually value brands and why. Gunther and Kriegbaum-Kling (2001) surveyed managers at 132 German companies to understand how they treated brand valuation. It won’t come as a huge surprise to learn that many saw valuing brands as very challenging.
The researchers also asked why brand valuations were completed. Of the 47 companies that attempted to value brands 61.7% said that this was for internal control purposes. This makes sense, to control an asset effectively it helps to have an idea of what the asset is worth. 59.6% used the valuations in budgeting decisions, again this makes sense, it helps when considering whether investing in a brand makes sense. 29.8% used valuations in acquisitions and spinoffs. Others (36.2%) used the valuations in negotiations with dealers. Assisting with the fixing of license fees rounding off the top five reasons (14.9%).
Overall the authors found, “…a gap between the perception of brand as an intangible asset that represents a long term investment and the actual management of brands in practice. Brand management predominantly focused on short-term, tactical, single period targets.” (Gunther and Kriegbaum-Kling, 2001, page 292). There is lots of work to do on brand valuation, it is really hard, but estimating the value of brands more accurately might allow for better informed investment decisions.
Read: Gunther, Thomas, and Catharina Kriegbaum-Kling (2001) “Brand valuation and control: an empirical study.” Schmalenbach Business Review: ZFBF 53, no. 4, 263-294.