MJ Braide on Brand Strategy

I’ve always thought that the question was not “how is my brand doing”? It’s “how is my company doing”? Nice to have a top-10 rated brand by Interbrand, Millward Brown or Brand Finance, but if your stock is sinking, which it might well be, who cares about a brand value ranking?

My colleague and friend Jonathan Knowles, founder of Type 2 Consulting and probably our most cogent thinker on brand and marketing valuation, has been sharing with me some of his own, and others’ research on the link between good brand management and the creation of shareholder value. This is not the same as how-does-your-brand-do-in-the-rankings question (which is good for the ego, but not necessarily the shareholder). This is: what is the real value that your brand is creating, from a financial performance point-of-view. Powerful stuff for marketers who need to speak the language of the CFO and very compelling for CEOs working to bring their boards and executive teams onside with investment in brand – when other needs are competing for dollars.

After surveying just about everything out there on the topic, Jonathan speaks very highly of the work of Thomas J. Madden, Frank Fehle and Susan Fournier published in the Journal of the Academy of Marketing Science 2006; 34; 224. In Brands Matter: An Empirical Demonstration of the Creation of Shareholder Value Through Branding, Madden, Fehle and Fournier state:

“It has long been argued that brand development strategies create shareholder value, but compelling empirical evidence to support this claim has been lacking. Using monthly stock returns for the period 1994-2000, we find that the portfolio of brands identified as strong according to Interbrand’s valuation method displays statistically and economically significant performance advantages compared with the overall market. Firms that have developed strong brands create value for their shareholders by yielding returns that are greater in magnitude than a relevant market benchmark, and perhaps more important, they do so with less risk.”

Thanks to Jonathan for this summary

Ah, greater return for less risk. The holy grail.

And for you finance types, I quote the authors further:

“The results show that the WMVB (branded) portfolio significantly outperformed both benchmark portfolios in terms of average monthly returns. The WMVB portfolio yielded average monthly returns of 1.98 percent; during the same time period, the benchmark portfolio on average returned 1.34 percent per month. For comparison, the 1-month Treasury Bill rate, which proxies the risk-free rate, averaged .42 percent per month during the analysis period, and the market as a whole (as measured by the FM portfolio) averaged 1.52 percent per month.”

I really like where the authors take their findings – into the realm of risk management:

“A direct implication of our work is that we broaden the conception of brands from the sales space to the value space and, accordingly, move toward a deeper understanding of brand management within the framework of risk management. Our empirical results clearly support the implied role of the brand in reducing the volatility and vulnerability of cash flows, as well as a conceptualization of the brand as a powerful risk management tool for firms.”

A timely message in this environment, and one that links brand strategy closely to corporate strategy and makes it one of the most powerful tools of leadership. Not that I don’t love marketing (some of my best friends are CMOs) but I do think it’s time the brand imperative became a priority for the whole c-suite.

I’m looking forward to posting findings of new research by Jonathan and his partner Rich Ettenson on whether financial performance is influenced by how deeply you invest in brand. Is it enough to throw out a few ads? Or do you have to build the brand in profound ways to make it generate value? Stay tuned.