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
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.