Archive for November, 2008

“Towards Social Branding”: An ongoing discussion with Michael Cayley. Part 1 of some.

Since I first alighted on Michael Cayley's innovative prescription for the measurement of brand value, he and I have bee...

November 18, 2008

Since I first alighted on Michael Cayley’s innovative prescription for the measurement of brand value, he and I have been talking privately about different models for linking social capital theory to current brand practice…

We thought it might be fun to have ‘that chat’ out loud in a public forum…

So here goes…

Brand Valuation is already a well established industry, driven principally by the need to explain the fluctuating gap between stock market valuation and underlying assets.  As such it is a retrospective explanation of shareholder behaviour.  It seeks to explain how this estimated likehood of generating a return to shareholders may actually have arisen in the stockmarket.

Now personally, I think it’s high debatable whether the speculations of the stock market need to have any meaningful correlation to underlying value (ultimately what we see is just a side-effect of capital chasing an outlet).  But if you believe in the sanctity (or even the usefulness) of capital markets, then you do kind of have to accept this in some shape or form. Plus, pragmatically, people sometimes need to buy brands and need a way of valuing them.

So brand valuation was constructed as a way of explaining this disparity of value…

In all models of brand valuation companies ultimately try to link their goodwill acquired to a future earnings expectation, which is a measure of their confidence that customers will keep buying a product.  For those trying to explain intangible value on the balance sheet, the challenge is to create a discounted cash-flow of the customer earnings they anticipate, and then attribute some of that value to a ‘brand quotient’.

There is an alternative approach to the shareholder-value driven model, of course, which is to say that you fundamentally believe that brand loyalty drives future purchase and build your valuation ‘customer-back’.

In many ways this is more in tune with traditional marketing thinking.  However, in this case you have the converse problem of explaining how much of this putation market-appetite a company may be able to actually convert.  Brand Value may, in principle exceed corporate value on this model, and where this happens a brand should seek a new home.  WPP’s BRANDZ Valuation model comes closest to adopting this approach, using in-market loyalty indicators (actual customer brand bonding, in their language) to drive a bottom-up brand valuation.

The question is: “So what’s wrong with all this? And how could understanding social capital create a better way?”

1. Well we can (and will) debate the useability of these metrics for brandstewards – i.e. should you really run your business around driving brand loyalty?

2. We can (and will) debate the basis of calculation – i.e. looking beyond revenue, how are you undertanding your brand’s contribution to risk, to cost-reduction and productivity?

3. We can (and will) debate the cash-centric nature of these models – where are natural capital and human capital reflected in these valuations? And should they be?

4. We can (and will) debate the merits of the single-stakeholder view embodied in these models – where is brand value for employees, NGOs, government and communities?  Does all this complexity really just convert into customer share of wallet?

Ultimately, I’d prefer to start by measuring brand value from the same place I’d start managing a brand, from understanding the utility it provides to the brand user – enabling them to better access and utilise their own and others’ resources, and receive personal and social benefits which would not be available if the brand did not exist.

At root, brand value is not just a psychological phenomenon, but a social phenomenon.  Brands disrupt the norms, networks, reciprocities and trust which inhere in social networks. They bring about novel social ideas, stories, cues and symbols which connect communities together, filling structural holes.

Brands do not have direct relationships with people; but they do enable relationships between people – and these relationships have value as social capital.

Taking a normative view, (which one probably shouldn’t – the Oklahoma bomber had great social capital, as does Ku Klux Klan) brands create or destroy the social capital for the collective, and affect its useability for the individual. This social capital impact will not necessarily affect ‘repeat purchase’ for an individual customer in the near term, but it will absolutely leave a semiotic footprint within a social network…creating  something akin to ‘social pathway’, a path that new ideas, propositions and narratives can track in due course…in both directions.

To conclude – right at the heart of brand valuation’s ‘partial success’ and at the heart of the need to improve the model, lies a fundamental change in the way that brands drive value value as social artefacts – a shift from purely symbolic, solidarity-forming (‘expressive’) role of brands, to a more holistic, systematic view which values the ‘social footprint’ that brands leave behind them – what Michael refers to a ‘memetic brand’.

Over to you, Michael…

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