Knowledge Base

Is Brand Juice Worth the Squeezing? Let’s Talk ROI.

These days, it seems that any business recommendation provokes the same response: “What’s the return on investment?” And—where brand issues are concerned—the question is often met with uncomfortable silence or a snide remark about “our disco-era logo.”

In fact, it IS difficult to account for the return in brand development costs. Which makes it much easier to find the budget for lead generation, or direct marketing, or even—could it be possible?—traditional advertising. Because even though we know “half the money is wasted” on those things, we don’t know which half. And at the end of the day we may have a few more leads, sales, or awareness, all of which may eventually make the cash register ring. But what’s most comforting to marketing folks is that we can measure the costs and results, so we can justify the expense.

But brand development, what’s that about? “Don’t know how to manage it, measure it, or fit it into the marketing budget. Take dollars out of my lead generation program and put it into brand development? Why don’t I just get in line at the unemployment office right now?”

Okay, take a deep breath and repeat after me: “Brand development is not a marketing initiative; it is a corporate initiative.” Your brand is not an advertising campaign or a lead generation tactic. It can—and should—energize those efforts, but it is not “a marketing thing.” IT IS THE ESSENCE OF YOUR COMPANY. It’s reflected in your structure, your operations, in everything your company does. It’s whatever your customers and prospects think of when they hear your company’s name or see your disco-era logo. And—unlike leads—IT HAS REAL CASH VALUE.

How much?

Well, if you work for Maytag, your company brand is worth about 97% of your company’s total value. (That’s right, 97%!) If you work for Dell, about 92%. Oracle? 91%. Where do those numbers come from? They represent the value of those companies’ intangible assets: the difference between their market cap (total value) and their book value (tangible assets). They’re the cash value of those companies’ perceived ability to fulfill customers’ expectations into the future. They are the value of those companies’ brands. We’ll call them “Brand Value.” And, yes, they are worth a huge portion of the companies’ total values. In fact, the average Brand Value for the entire Fortune 500 in 2003 was 69% of the total value.

How can something intangible be worth so much?
Well consider this. At one time Chevrolet marketed the Prism, a car absolutely identical to the Toyota in nearly every way. It was made in the same factory, with the same parts, by the same people. The only material difference between the two cars when they left the factory was the nameplate. But there the similarities ended. Toyota charged $650 more for the Corolla than Chevy did for the Prism and most years, while they were competing, Toyota sold about 250,000 Corollas to Chevy’s 65,000 Prisms.

Here’s another difference: Chevy doesn’t sell the Prism anymore. But the Corolla? You’ll either be driving in one or behind one on the way home from work tonight. Why? Because everyone knows Toyota’s brand is about building absolutely reliable small-midsize cars, at affordable prices, while Chevy is known for, well, what is it today? American manufacturing? Trucks? Dollar for dollar, you can bet Toyota saw more ROI on its Corolla advertising than Chevy did on its Prism advertising. Toyota’s ability to leverage their brand in this tactical way, and the promise that they can do it again and again, and extend it across other products, is what makes their brand more valuable than any of their auto plants (which are depreciating assets, anyway). Anyone can make a car, but only Toyota can make a Toyota. (Can you say the same thing about your brand?)

But how do I measure the ROI on my brand?
First of all, let me say that obsessing about every penny of ROI is not the best way to go about developing a brand. Well-developed brands pay out in many ways over the course of time: in stronger sales, higher margins, more focused operations, and more effective marketing, just for starters. There’s plenty of return to be gained here. But because most of these secondary effects will be measured within the context of regular investments in marketing, sales, etc., they shouldn’t really be “double counted” as return on the brand development investment, itself.

Those are returns on operating income anyway. And as we’ve seen, a brand is an asset, albeit an intangible one. So the return on the brand development investment is measured not in operating income, but in the improvement in the value of the brand as an asset, the Brand Value.

The fact that the brand development investment results in return in the increased value of an intangible asset makes it difficult to measure in absolute dollars. But that doesn’t mean it’s impossible to measure. The key is indexing the components of brand and combining them into a single Brand Index (Trajectories Group has created a great technique for doing this.), then recalculating at intervals. By calculating the difference between before and after, you’ll get a good take on brand development ROI.

So how much Brand ROI should I expect?
Well, …let’s say your company is worth $10 million and—like the average Fortune 500 company—69% of that ($6.9 million) is Brand Value. You run a Strategic Brand Assessment (SBA) study and determine your combined Brand Index is 40 (on a 100-point scale). After a year of brand development efforts—including brand discovery, research, creative execution, adoption activities, etc,—at a total cost of $200,000 (not unreasonable for a thorough process), you run the SBA again and see you’ve made decent progress; your Brand Index has improved to 50, a 25% improvement over the benchmark. That 25% of the Brand Value is valued at $1.725 million. So the ROI is a gaudy 762.5% ([$1,725,000 - $200,000]/$200,000). Even more spectacular, a $200,000 investment has increased the value of the company by over 17%.

Now you could argue that converting an index of an intangible asset into cash is more theoretical than bankable. And we would agree…to a point. Because the fact that well-developed brands drive company earnings is not theoretical. We all see it every day, just like we saw it in the Corolla/Prism example. Which is why for most companies—certainly for the most successful companies—their unique brand forms the greatest part of their value. You can choose different ways to measure progress. But the principle is clear: the money you spend to leverage—and grow—your most valuable asset is a prudent investment, indeed.
 

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• Jim Hughes is the Founding Partner of the Brand Establishment and has developed hundreds of brands in almost every business category during his career. He personally created and developed the BE’s proven Turning the Telescope™ Discovery process as well as the 21st century small agency business model: Small+Smart™.