I’ve written about the value of branding before and why it matters. One way to assess the value of a brand is measuring its consumer-based brand equity, or CBBE.
By definition, CBBE is the differential effect that brand knowledge has on consumer response to the marketing (specifically, the promotion) of that brand. The figure illustrates this differential effect.
Finally, let’s say you both spend approximately the same amount on promotion for your respective products, to educate and motivate customers to buy them.
All things being equal, the larger result of purchases of your product (Brand B) versus your competitor’s (Brand A) – as represented by the dollar signs “$$$” – is the measure of CBBE.
In short, you could say that your brand equity is the aggregate of that differential effect, on an annualized basis.
Or, in other words:
- IF you run four major campaigns during the year,
- AND sell an average of $250,000 more than your competitor each campaign,
- AND spend roughly the same amount on promotion as they do,
- AND use approximately the same techniques (i.e., couponing, PR, etc.),
- THEN your CBBE is $1M or more, per year.
That’s one way that branding delivers value to your business.
Brand value is a significant contributor to the intangible assets, specifically, what is known as goodwill, of a company.
When you look at a balance sheet, the major components include Assets, Liabilities, and what people refer to as Owner’s Equity. Assets include tangible assets (like cash, bonds, etc.) and intangible assets. Goodwill is a key intangible asset.
In accounting terms, when a company is acquired, goodwill amounts to the excess of the “purchase consideration” (the money paid to purchase the asset or business) over the total value of the assets and liabilities. It is classified as an intangible asset on the balance sheet, since it can neither be seen nor touched.
Over the past several decades, intangible assets generally – and goodwill, specifically! – have represented an increasing percentage of acquisition costs…largely, many would say, due to the growing added value that effective branding represents to a firm.
In our rapidly evolving mobile/social/location-based digital economy, there are evermore services for helping companies increase their CBBE.
For example, new services like HYPR Brands and Narativ that provide access to large networks of brand ambassadors — who themselves are key influencers in specific categories — are becoming powerful allies to brand building.
For marketers, the key is to be committed to measuring your CBBE and be bold about arguing the business case for your brand-building programs, when it comes to budget allocation and strategic initiatives for the company.
You are the stewards for one of the most valuable assets and powerful tools that your company has in its quest to lead your market segment. Don’t forget that!