It’s a basic tenet in most for-profit corporations, particularly those that are publicly owned, to increase shareholder value (i.e. financial value). CEOs and CFOs certainly focus on long-term value creation, especially when it might impact an eventual sale price for their organizations. But how does brand contribute to this picture of valuation – and can CMOs, tasked with making sales happen in the short term, be expected to worry about and plan around the creation of long-term value? Or, perhaps more pertinently, is there such a thing as creating long-term value without attending first to the near term?
This is an area of some contention in both B2C and B2B organizations. In fact, Brandingmag has covered the issue of valuation more than once in just the past year (valuation being defined concisely by one of our other interviewees, David Haigh of Brand Finance, as “the practice of determining the financial value of a transferable brand asset”).
We explored the subject from a different angle in a recent conversation with prominent academic John Parker of Northwestern University’s Kellogg School of Management, who has developed a somewhat contrarian perspective based on years of professional, real-world experience.
Before Parker joined the faculty of America’s top-rated graduate marketing program, he was a life-long marketing learner, first as a business student at MIT, then as a McKinsey consultant, and finally as the Chief Marketing Officer of Zurich Financial in the U.S. Throughout his journey as a marketer and into the classroom educating future marketers, he has focused on one word: growth. Here’s just part of our conversation.
Brandingmag: What do you see as a marketer’s key responsibility in value creation?
John Parker: I’ve always looked at it as a need to drive revenue growth. When I think of the value of a brand in that, I think of the set of associations and experiences that would cause a customer to choose your product over another product, or pay more if the actual service or product is equivalent. That’s the value of the brand to me – helping you win in competitive situations and command premium pricing.
Bm: Which, of course, should drive revenue growth. But beyond what one might think of as that day-in-day-out responsibility, do you see a bigger picture role for brand in terms of contributing to the balance sheet as a concrete asset and forming part of the overall financial valuation of an organization?
JP: That’s a great question. There is the brand value that appears in the goodwill item on the asset side of the balance sheet — the brand equity.
“Everybody understands when sales go up, and everybody understands the value of that, but they don’t necessarily understand the abstract notion of brand equity as a line item on a balance sheet.”
It’s probably meaningful to classically trained marketers, and it probably has value in organizations that are marketing oriented and have always thought in these terms. If you look at consumer packaged goods, people understand and intuitively get this, and not just the marketing people. The CEO typically gets it. The CFO probably gets it, as well. They will respond to data that says, “Hey, our brand could move up one [in rankings like those put out by Interbrand].”
But if you’re in an organization that is less marketing oriented, like many B2B companies, it’s less likely that the CFO has real marketing experience, or even an affinity towards it. The same with the CEO. They may come up through sales. They may come up through operations. They may come some other way. In those cases, they won’t understand brand equity. And it’s hard to understand – it seems like a very abstract concept. Everybody understands when sales go up, and everybody understands the value of that, but they don’t necessarily understand the abstract notion of brand equity as a line item on a balance sheet.
If you’re in a culture where marketing is a relatively new and unexplored discipline, that’s a hard one to really hang your hat on as a primary goal. In fact, if marketing isn’t central to the history and the DNA of the business, the idea of brand equity as something on the balance sheet can be viewed with a certain degree of skepticism. Whereas, if you’re in a culture where that is widely understood, shared, and accepted, then brand valuation is probably very, very useful.
Bm: Are you familiar with any B2B cases where an organization has undertaken formal brand valuation and, if so, how they were able to leverage that?
JP: Honestly — and I don’t mean to sound flip — I’m not sure why anyone would. There are so many other things B2B marketers need to do.
Sure, when you’re in an agency or when you’re in an academic position and you’re studying this from the outside, valuation may seem like a logical step. But when you’re running the company and you have just so many hours in a day and you find the metric that tells you you’re making the right decision around marketing spend and programs, you say, “Great!” – and you move on to the next problem.
If I, as the CMO, am seeing that my marketing activity is driving sales and I can compare my different activities, and understand the returns from each, such that I have a pretty good sense that we’re optimizing our mix and our spend – well, I stop there and move on to the next problem.
“You don’t want your answer to be, ‘Well, I’m adding to goodwill on the balance sheet.’ You want to say, ‘I’m driving growth and here’s where, here’s how.'”
I’ve got to worry about new products. I’ve got to worry about changing customer dates. I’ve got to worry about distribution issues. I’ve got to worry about markets. Am I going to invest a lot of time and resources in brand equity as a line item on a balance sheet? No, because I have other problems that are a lot more pressing than that. I already know that it’s working. I don’t need that.
If I’m getting a third party telling me I’m creating brand equity on my balance sheet, but I don’t have any information that shows I’m contributing to growth, that’s a very unaccountable position to put oneself in with the C-Suite. You’ve got a CEO, and a CFO, and COO, and all the other Cs, who are saying, “Hey, what’s your contribution to creating value?” You don’t want your answer to be, “Well, I’m adding to goodwill on the balance sheet.” You want to say, “I’m driving growth and here’s where, here’s how.”
So, at least from one experienced B2B expert’s perspective, creating brand value as a balance sheet calculation isn’t important as immediate value creation (in the form of revenue). Do you agree? We encourage other experienced B2B marketers to weigh in with comments.