Macro and micro levels of value creation
Brand value is a cumulative result of sales volume, equity, audience size, and the brandʼs market potential.
But unlike other assets like stocks, bonds, commodities and real estate, there is no active market in brands that would provide comparable values. The main issue with brand valuations is their arbitrary measurement and few agreed-upon systems and processes for evaluating brand assets.
“Brands are a company’s most valued asset, yet there is not universally accepted method of measuring that value. The only time you can be sure of the value of your brand is just after you have sold it,” noted WPP’s advisory board member Jeremy Bullmore.
At the same time, well-managed brands have extraordinary economic value. “Founders die. Factories burn down. Technology becomes obsolete. The brand is the only sound foundation on which business leaders can build enduring, profitable growth,” per ad exec Jim Mullen. Brands are “the most effective and efficient creators of sustainable wealth,” according to Interbrand Chair.
Brand create value on macro and micro levels. On a macro level, brands create value by participating in the economy. On the micro level, brands create value by linking culture with business.
Strong brands outperform the market. Companies that invested in their brands marked 67 percent above-average organic revenue growth and 70 percent above average total return to shareholders, and the world’s 40 strongest brands gave almost double return to shareholders of an investment over the course of the past 20 years.
Here are the five macro-ways in which brands create value. Brands:
Expand the Size of Addressable Market. Brands build awareness for a company beyond its target audience, hopefully propelling it in the domain of culture and increasing its chances to be part of the consumers’ initial consideration set. Through its brand promise and brand values, a company can reach customers who ordinarily wouldn’t consider its products.
Provide long-term differentiation. Brands increase product value by adding emotional resonance and symbolic dimension to it. Consumers are not buying products, they are buying stories. Once they buy into a point of view, a set of values, and a lifestyle, consumers are less likely to treat a product as an interchangeable commodity, and more likely to be loyal to the brand.
EnsureStrategic Growth. Brands clarify decision-making criteria. They guide new growth opportunities, product development, operations, and communication. Brands that evaluate whether a specific business action or investment move them closer to their vision move faster and more confidently than its peers.
Protect price and market share. Companies that have a clear brand purpose achieve double brand-value growth than companies that are focused purely on profit generation. Brands protects product price, as customers are not waiting for discounts and sales in order to buy a product. They also protect market share by creating a clear differentiation versus the competition.
De-Risk the Business. Brands de-risk the business in two ways. They build customer proximity through qualitative and quantitative data and insights and keep the company laser-focused on its audience. This laser-focus on the customer increases the chances that brand actions, new products, and services will be a success. Second, having a shared purpose and values creates alignment between a company’s internal culture and its brand. Without this alignment, a company doesn’t have a brand. It has a custom font. Further, having an internal culture that prioritizes diversity, equality, creativity, and innovation is at least risk to spectacularly implode and become a PR disaster fodder than the one that prioritizes relentless and fast-paced growth.
In the past decade, there has been an economic reorientation towards social, cultural, and environmental value of goods. A product like cookware or a plant is never just a cookware or a plant: it’s a conduit for creativity, community, aesthetic pleasure, or a way to minimize environmental impact. When they buy a plate or a dress, consumers signal a lifestyle. When they sell a plate or a dress, sellers signal their worldview. Both sides are looking to impart value signaling into the exchange of goods. A two-track consumption pattern emerged: a) mass consumption of standardized products, and b) considered consumption of signaling products.
Against these two-track consumption pattern, there are the 4Cs of the modern brand: community, content, curation, and collaborations. The 4Cs shape how a brand creates social, cultural, environmental and economic value.
Community. A brand community went from a “nice to have” to a “must have.” It doesn’t matter what category a brand is in, it mandate is to find a way to put forward its social mission and values, which are the gel for a community. For brands that already maintain communities, the next step is to activate it more, and more often. The key here is for brands to stop thinking about their community just as top-of-the-funnel tactic, and consider it as a long-term, bottom-of-the-funnel strategy (purchase, bonding, advocacy, loyalty). Next step is to define and focus on the most valuable customer communities and connect with them on a personal level.
Content. Across categories, brands are pivoting to lifestyle, often livestreamed, content en masse. While it may feel overwhelming at times, this lifestyle content pivot is a good thing: it moves the brands away from product marketing and forces them to explore, define, and capitalize on their cultural and social role. There’s also a welcome content shift away from polished campaign imagery. More brands will hopefully embrace this lo-fi approach, and put forward scrappy, live, and real content focused on communal watching and socializing. Community-oriented content increasingly tends to do better vs the polished influencer one, as the currently predominant memes and aesthetic language demonstrate.
Curation. Brands are embracing the role of taste curators and bringing forth their unique POV on everything from food to film and theater to architecture and pop culture. Making something part of a curated selection lets brands increase the price and the profit. A product’s value is attached to the story. Alex Eagle’s Instagram accounts are a careful selection of cultural icons, furniture, sculpture, sports and art, all of which convey an atmosphere. The idea is to present the Alex Eagle’s collections as just one expression of Alex Eagle’s rarified taste and point of view.
Collaborations. MSCHF’s impossible collab t-shirt goes for $2.5K on eBay. If anyone ever tried to put a price on the absurd, this is it. Collaborations work for brands because they transform non-culture into culture. It’s a great business model: collaborations don’t need financial capital, only a strong brand capital. Supreme can put its logo on a brick and collaborate with Colgate as long as its brand equity is attractive. Collaborations work well in mature markets, where consumers are bored and products are commodified. There are only so many Uniqlo items that a person can own, but not if those items were made by Jun Takashi, Jil Sander or Pharrell. Hardest to replicate are collaborations that are inconsistent and random, like Heron Preston x MOON or Steven Alan x Mucinex. They’re a creative expression of a brand that let it flex its zeitgeist muscles, promote it as a trendsetter and turn its products into brand communication.