Brands and branding

There is a considerable body of opinion that posits that brands contribute a high proportion
of financial value to organisations.
Lindenman in Clifton & Simmons (2003 pp28) reports on the US Federal Reserve study into
tangibles as a percentage of all assets of non-financial business showing a dramatic increase
in the importance of intangibles in the 20th century. Her claim is that a high proposition of
this is due to the value of brands and reports on findings that purport that brand values of
companies like Coca-cola had a worth in 2002 of $69.6 billion.
In the Relationship Value Model , the brand asset is derived through actors holding tokens
that explicate the brand. But the model also posits that the value is only realised by another
actor or organisation in the exchange of value through a network in which convergent
values are exercised. This means that brand values are only available through relationships.
If, as Lindenman suggests, the brand value of a company like McDonald's, is 70% of its
stock market value, there is a problem for either the brand model or the Relationship Value
Model . In the Relationship Value Model there is no brand recognition without relationships.
The very nature of a brand is that it depends on relationships and it is in the nature of
relationships that there is a capacity to spread brand values. In both cases, the real value is
primarily in relationships.
This would value relationships more highly than brands and makes claims of brand value
being 70% of stock market valuation seem very strange.
The alternative argument is that it is the brand experience that causes relationships to
emerge and develop.
In the instance of a process applied using the Relationship Value Model described in this
paper (above) it becomes clear that this is not the case.
The process demonstrates that the first priority is to identify tokens in a landscape of actors
and their tokens to identify of convergence between actors' tokens and values in order that
relationship can be developed. The brand experience happens after the process of Relations
Management has begun and created the further, experience, tokens that identify the brand.
This means that a company that wanted to include brand values on a balance sheet as a
component of goodwill would need include the value of the associated relationships first.
Drawn from Lindenman's analysis of brand valuation models, it is worth pausing to look at
how brands are valued to see the difference in approaches between the Relationship Value
Model and the Brand Management Model.
There are a number of ways that brands are valued.
The research based approaches go to consumers to ask about awareness, knowledge,
familiarity, relevance, image attributes, purchase considerations, preference, satisfaction
and recommendation. This approach does not integrate well into economic models and
mixes and matches tokens and relationships.
In the Relationship Value Model , this would require a process such as a social frames
approach to tease out the relevant components to identify brand tokens and knowledge,
environment and relationship interactivity to be helpful.
Using a model to value brands as an aggregation of historic costs does not work well in the
Brand model or in the Relationship Value Model . Financial values, such as historic cost are
but one element and do not identify the process that builds both relationships and the token
values associated with the brand.
Brand valuation using comparisons between similar brands has problems in the brand model
because it is the nature of brands to differentiate between them. In the Relationship Value
Model , this is not as difficult. A token held by one person can (often) have different values
to another. It is this difference that differentiates brands and their value. For those looking
for a financial valuation, there is a need to be able to value the different tokens and the
values that actor ascribe to them.
Brands are often differentiated by the premium price that can command which is a way of
valuing them. To be effective there is a need for a generic brand and a premium brand to be
operating in the same 'market'. In addition there is a need to be able to identify those brand
tokens that actors hold which commands the premium price.
The most accepted method for valuing brands is based on economic use with five
components. The first is market segmentation. In the Relationship Value Model this equates
to those consumers with a nexus of material tokens. Other forms of market segmentation
will, by comparison, be artificial. Note, it is the relationship that comes first.
The economic use valuation method also includes Financial analysis of forecast earnings less
operational cost, taxes and cost of capital for each 'market segment' or, in the Model, nexus
of relationships. This derives a measure of intangible earnings. Demand analysis adds a
further metric which identifies various drivers of demand and the degree to which each is
directly influenced by the brand. Here again we explore the nature of consumer's tokens.
The Brand earnings are calculated by by multiplying the role of these measures with by
measures of intangible earnings. Added to a competitive benchmarking process (brand's
market, stability, leadership position, growth trend, support, geographic footprint and legal
protection) provides a reality check and thence, the brand valuation model is able to
calculate brand value.
This complex process is widely used but is flawed at each stage because it does not
distinguish between the brand attributes (tokens) and the relationships they offer through
convergence with actors. In addition, there is nothing by way of evaluation of the network
and its/their relative performance.
The way that brand are managed is often based on a brand value model.
In the Relationship Value Model , the actor comes first which means that in managing brand
issues including the place, products, price, processes, brand proposition, promotion, trust
and corporate social responsibility have a different foundation upon which the value of an
organisation and its brands can be valued and prosper. Identifying actors and the values
they place on such matters may be interesting but what will be important is what attributes
are given by the actors and the values they give to such attributes.
Will they be that same as the classic model above? Assuming the original foundation for the
above components is good, there should be a good match. I have a feeling that, when we
do the research, we may find some divergent views.
That values change is easy to understand. In the original study we can see evidence of
actors in an organisation changing values. It was going to use 'low unemployment' in the
pantheon of tokens it offered the electorate. The demise of the car company Rover, with
implications for unemployment, meant that the Labour Party lost one of its strong tokens.
In step with each other, the actors still could deport their strong token of the 'economy' but
realised that the 'employment' card had changed into a threat. Its value had changed under
pressure from external influences, The brand proposition had to change too. Brand elasticity
would seem to have more than one dimension.
In another context, one can see the values change from internal influences. 'Gordon Brown'
as a token was a valuable strength because of his successes as a Chancellor of the
Exchequer. This token was used in concert by the Labour Party actors to associate his
success with electors desire for a stable economy. In many walks of life and at a different
time, the Chancellor is seen as the personification of the taxman, never a popular figure in
any society. The Labour actors brought the attributes of the economy into convergence with
the electorate's desire for a stable economy despite the reality that Mr Brown had increased
taxation during his tenure of office. They had created value from the 'Gordon Brown' token
which (one may assume) translated into votes.
It would seem that the process of optimising convergence to benefit the organisation
creates wealth.
One can see this in every day life. Empathy between a customer and salesman adds value
to organisations through the exchange of goods for money. This value can be enhanced
when such transactions enhance brand values according to DeChernatony:
A successful brand is an identifiable product, service, person or place, augmented in such a
way that the buyer or user perceives relevant, unique, sustainable added values which
match their needs most closely.
Branding in this context adds value in the classic Relationship Value Model . The process is
one of convergence of interests between the brand owner and the customer. The resulting
values add new wealth both as a trading asset and in exchange when the brand is, for
example, sold or reflected in share price.
The process for achieving this state of affairs is quite explicit and is covered in the chapter
The Application of Process to the Relationship Value Model below.