Editor’s note:
This topic began with a provocative question for the Forum, from contributor Denis Riney (of BrandLogic):
“What’s the value of identity - in other words, what are some best practices for measuring impact, ROI, etc? And how can our profession lead the way in this, to benefit all of us?”
To begin, we must (as always) distinguish between the corporate identity and the product or category brand (even when they share a name). The economic value of a category brand, I suggest, is not too difficult to measure, at least in concept: it is essentially the profit margin premium that the product reputation supports, multiplied by expected future sales volume. Existing brand valuation models I have seen concern themselves with category brands - and none I’m aware of distinguish these from their institutional parent’s identity, to be independently valued.
And the institutional identity (or corporate brand), the product’s source-brand, is much harder to evaluate and quantify, because its purposes and benefits are more diverse. In addition to its possible contribution to product marketing profit, it can have measurable benefits in terms (for example) of morale, leadership team-building, cultural change, public good will and investor confidence. Today, realistically, the monetary value of the corporate brand is really clear only in the event of an acquisition, when the acquirer allocates a proportion of the purchase premium (the acquisition price minus the value of the tangible assets acquired) to the corporate brand.
- Short of putting a corporation up for sale, how can we measure the value of its institutional identity?
- More importantly, how do we measure return on incremental spending to strengthen identity, whether monetarily or in other currencies?
Since another Identity Forum Contributor, Jonathan Knowles (of Type 2 Consulting), has written books on this complex subject, most notably co-authoring “Vulcans, Earthlings and Marketing ROI,” I have invited Jonathan to kick off this discussion. Tony Spaeth
Jonathan Knowles:
Thank you for the opportunity to initiate this important topic. My view is that three major issues lurk behind the seemingly innocent value/ROI question:
- The first issue is about alignment - are identity marketers serious about trying to make a contribution to the success of the business?
- The second is about relevance - how significant a business asset is corporate brand/identity?
- The third is about measurement - how should the effectiveness of identity investment then be measured?
My experience is that, in the majority of cases, it is the first two issues that lie behind the request for demonstrating the ROI on marketing spend, or for a brand valuation. Responding to the request at face value is therefore a mistake because a ROI or valuation model will not address the underlying concern about marketing’s lack of alignment with business strategy, and skepticism about the significance of the impact that brand/identity can exert on overall business value.
Finance people are not being deliberately difficult when they ask the question - they are genuinely unsure about whether marketing, branding and identity matter. They inhabit a Vulcan world of rational economic maximization in which all decisions are based on a sober assessment of functional performance and price. They therefore have real difficulty in understanding why all this talk about positioning, identity and brand essence is relevant to the business.
In many cases, therefore, the best response to the value/ROI question is to draw an influence diagram to illustrate the ways in which identity, branding and marketing add to the value of the business. This turns the conversation into a productive, strategic discussion about the sources of customer value and the role of identity, branding and marketing in enhancing the perceived attractiveness of the company’s products and services.
In a minority of cases, the ROI question genuinely is a question of the third issue - measurement - and therefore requires a numeric response. But before you can determine what kind of measurement is relevant, I believe you need to further clarify the question on two dimensions:
- Are we looking for quantification in terms of customer value or financial value?
- Are we primarily interested in the short term or the longer term?
If the interest is short term and financial, then you genuinely do need to measure ROI. If it is long term and financial, you need to perform some kind of valuation. But if the interest is in the extent of the customer preference we enjoy, then your answer should not involve financial numbers at all - they should be numbers of client acquisitions, engagement scores, average purchase frequency, willingness to recommend, brand equity and a host of other measures of customer preference and behavior.
If there is interest, I will happily discuss how a credible, financial value might be calculated for a corporate identity. The goal of this initial post is simply to highlight that there are multiple motives that can provoke the question “what is the value of identity?” and a formal valuation is an effective response in only a minority of cases.
By Scott Lerman
13 APR 2010, 21:43 GMT
Jonathan. I agree that finance and business leaders are not being “deliberately difficult” when they question whether branding and identity matter. Their confusion (and occasional hostility) is our fault. Instead of interacting as colleagues, we often arrive as shamans bearing promises, signs, and symbols. We deal in culture, language, expression, and experience, they deal in markets, disclosures, actions, and performance. No wonder the C-Suite sends us off to calculate ROI!
Instead of asking managers to accept the superiority of “Design Thinking” we need to take on the responsibilities and language of business thinking. If we discuss business issues and opportunities in their vernacular, business leaders will be far more inclined to accept the alignment and relevance of intangible solutions and assets. My bet is that demands for brand and identity ROI will then fade away.
By Marco Rezende
14 APR 2010, 0:47 GMT
The financial value of identity is unmesurable. Its expressions are not a not a quantitative reality. Identity is expressed by a system of symbols and, as symbol, it creates a qualitative reality: ”symbolical value”, as Baudrillard, the french philosopher says. It is the condition of any exchange or economic value. There is no financial value if there no symbolical value.If symbolical value is low the economcal value will be low, in direct relation. Exxon corporate brand, as an exemple, has a financial value of “X” billion dolars in itself as an abstraction or it has value as the result of a tangible identity system in all its expressions? If, again as an exemple, Exxon identity was dark, confusing or repulsive, would its corporate reputation be positive? I do not think so. As a consequence of a low qulaity identity system, Exxon brand value would be inferior. To jutify an investment on brand identity as a system, be it corporate or product, I would just say: the symbolic dimension it a condition of any measurable reality.
In order to measure symbolical value we need to develop more sophisticated research, usind complex mathematics and integrating other disciplines. But that is a subject that is beyond this forum, isn´t it?
By Jonathan Knowles
14 APR 2010, 7:48 GMT
The juxtaposition of Scott and Marco’s comments speaks for itself. Scott’s post acknowledges the counterproductive effect of our habit of “arriving as shamans bearing promises, signs and symbols” while Marco mounts a spirited defence of this same shamanism, quoting a French philosopher as his source.
It is hard for us in the identity industry to conceive that business people have limited interest in what we do. It is not intuitively important to them why this “soft stuff” matters. If we wish to play a more influential role in business strategy (and command the fees that we believe we deserve), then we need to explain the causality between what we do and how businesses subsequently perform.
I agree with everything Marco’s says about “symbolic value” but I wish he had just used the term “brand equity” - then it might have been easier to begin to make the connection between symbol, meaning, brand, behavior and financial value.
By Marco Rezende
14 APR 2010, 20:46 GMT
In my opinion, “Brand equity” is an effect of symbolic value: a consequence. There is no brand equity without a brand. In order to persuade about identity value we must educate our audiences about the psycho-social process that takes place when a brand (a system of signs) is transformed by people into meaning and positive/negative factors, changing hearts and minds. My view is that we must change our orientation. Up to now we have been concerned with the effects of identity. Now, it is time to research and understand the causes, the reasons that transform identity symbols into brand equity. Unless we change our minds and revitalize our thinking we will never be able to change clients’ minds and we will remain logo creators and nothing more than “creative people”.
By Clive Chajet
14 APR 2010, 21:32 GMT
I read with interest Jonathan Knowles comments on trying to assign a precise value of corporate and brand identity and images to a corporation. It is a question that I have been asked countless times throughout my approximately 50 years in our ‘”industry” and my attitude to this particular issue is that precision in financial evaluations of image is unnecessary because there are too many variables that effect brand and corporate image evaluation that are significantly outside of the company’s ability to both control and, in fact, manage.
Branding does not lend itself to a precise number valuation. It is an asset that at the end of the day is recognized by business executives as a vital business tool to overall financial success but success is achieved by delivering the correct message to the primary audiences and if the message is the wrong one the brand will decline regardless of how much is spent in support of the message
While in business the score card is money and profits, the valuation of the brand is not just an the analysis of how much is being spent but rather the effectiveness of the product in meeting the expectations that your your messaging has communicated to customers and potential customers. To the eternal disapproval of the green eye shade executives, I do not believe that this will ever change.
By Jonathan Knowles
20 APR 2010, 19:54 GMT
I am intrigued by Clive Chajet’s characterization of my position as being that we should ”try to assign a precise value [to] corporate and brand identity” - like him, I am only too painfully aware of how impossible a task this is. But just because precision is not possible does not let us off the hook of trying to provide an indication of the scale of economic importance of brands.
We love to claim that ”brand is an asset” and think that this assertion alone is suffiicent. For finance folk (and specifically accountants) an asset is defined as “a resource controlled by the corporation and from which future economic benefits are expected to flow.” If you want to call something an “asset” you had better be ready to talk in concrete terms about the future economic benefits that flow from it.
I am not saying this is easy - but I think we can do a lot better as an industry than we have done to date. One concrete suggestion is that we should at least develop some “rules of thumb” for the range of value added that branding provides across different industry categories. Analysis of the Interbrand, Millward Brown and Brand Finance league tables shows that brands may represent less than 5% of the market value of one of the oil & gas majors, around 10% for a bank or insurer, around 15% for a telco, but 35% or more of the market value of a consumer goods company.
Does this give a “precise numeric valuation”? No - but it does give finance folk a strong reason why they might want to pay greater attention to brand and identity.
By Jevgeni Strganov
08 MAY 2010, 15:51 GMT
As Marco says - “Brand equity” is an effect of “symbolic value”. He is totaly right, but also the “symbolic value” is an effect of consumer “moral values, preferences and life style”. But I think we stil talking about how to give a “precise numeric valuation” to brand and identity.
So I think that the true value of idnentity depends on as many of ”moral values, preferences and life styles” are touched and consolidated in percent% of available market.
As Jonathan links to analisys, I would like to comment my view to reasons of that numbers - the “oil & gas” sector is less oriented on public relations, the product differentiation is small and familiar to consumers. That’s why the “oil & gas” company brand is represent less for 5% and we can not promise more, only if the manufacturing companies (consumers) will bring out more new technologies on market. So in some industries the valuation of branding in this situation walk in one step with strategy planing.
By Scott Lerman
08 MAY 2010, 19:28 GMT
“Brand” adds more value to companies that sell consumer goods than those that provide products and services to other businesses. But let’s remember that market valuation is set by the perceptions and metrics of the markets and industry analysts. Do analysts of the oil services industry properly weigh the ability of a brand to attract talent when assessing its value? Do they consider how the right brand attributes can buy time, ”the benefit of the doubt,” and even forgiveness during a crisis? What about a brand’s power to attracting high quality partners, open new markets, or enable the sale of new classes of products and services?
Jonathan, I’m curious about your insights on how to imrove the measurement and valuation of b2b brands.
By Derek Kimball
17 AUG 2010, 17:40 GMT
Your mention of using diagrams to illustrate the ways in which identity, branding and marketing add to the value of the business is quite interesting. When dealing with clients I often find that showing images helps them better understand some of the more confusing aspects of the graphic design world. It makes perfect sense that the same method apply to communicating about branding strategy.