Brand Bubble Excerpt

8/4/2019 Brand Bubble Excerpt

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Worlds Largest Brand Database

Most Powerul Brand Model

Aligning Brand Strategy With

Business Objectives

BrandAsset Consulting285 Madison Avenue

New York, New York 10017

www.brandassetconsulting.com

Ed Lebar

CEO

212.210.4226

ed.lebar@brandassetconsulting.

com

Ryan Barker

SVP

Director of Brand Strategy

212.210.4665

[email protected]

Anne Rivers

SVP


212.210.3553

[email protected]

Seth Traum

SVP


212.210.3841

[email protected]

Susan Ochs

Management Advisor

212.210.3829

[email protected]


3/16

Customer surveys show that the number of high-performance value creangbrands is diminishing across the board. Yet at the same me, businesses and

nancial markets keep raising brand valuaons. The result? A brand bubble thatcould erase large porons of intangible value in your company and send another

shockwave through the global economy.

THE BRAND BUBBLE

The Looming Crisis in Brand Value and How to Avoid ItBy John Gerzema and Ed Lebar

Trillions of dollars of the worlds economies and millions of jobs depend on brands.

Trouble is, BrandAsset ConsulngTM, a Young & Rubicam Brand, has discovered sobering

evidence that consumers are souring on brands: consumers have stopped believing brands

are special.

We have been researchingbrands since 1993 through our

BrandAsset Valuator (BAV),

an empirical model based on

global consumer percepons

and behavior paerns. Data

compiled over 15 years show

signicant drops in consumer

awareness, regard, admiraon

and trust for thousands of

brands. The ndings indicate

consumers are overwhelmedwith undierenated brands;

uninspired by the lack of

dynamism in many brands; and

skepcal that any brands are

unique enough to warrant their

respectand cash.

At the same me, brands have been creang more and more value for their companies

and shareholders. Our econometric models show substanal increases in share prices and

intangible value. Aggregate intangible value of brands has been increasing over me, but

fewer and fewer brands are contribung to the increases. The number of high-performance,value-creang brands is diminishing. Consumers believe the lions share of brands are eroding

in value.

This is grim news. As was the case before the current mortgage meltdown and the dot

com bomb of 2000, business is riding on a bubble: a brand bubble. All is not lost yet and we

believe weve found a way to avert catastrophe. We have evidence, by way of a predicve

brand and nancial model, that there is a certain quality in brands that curries consumer favor

in a momentous way: Energized Dierenaon.

60

Percentage of Trustworthy Brands Over Time

1997

Year

All BrandsPercent

2001 2003 2005 2006

50

52%

33%

26% 25%

40

30

10

20

0

46%


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TULIPMANIA AND INFLATED BRANDS

In 1843, Charles Mackay wrote the

book Extraordinary Popular Delusions

and the Madness of Crowds to describe

various markeng phenomena. Of specialnote was his passage on tulipmania in

Holland in the early 1600s. The Dutch

acquired a taste for tulips, and began

trading in tulip bulbs at exorbitant

prices. Speculators even took out futures

contracts on unplanted bulbs. But at the

height of the hysteria, the craze for tulips

suddenly withered, and many people lost

enre life savings.

Tulipmania, it turns out, is prescient

of the recent economic bubbles

including the brand bubble. Today, a

brands contribuon to the overallenterprise value of a rm is oen

comparable to sales and prots. In the

last ve decades, intangible value has

risen to comprise a larger proporon of

overall enterprise value in many cases.

Intangibles (enterprise value less book

value of assets) value includes the

esmated value of brands, market

posion, business systems, and

knowledge.Our esmates show intangibles have

become a bigger part of a rms value

every decade. Accenture esmated that

intangibles accounted for almost 70% of

the value of the S&P 500 in 2007, up from

20% in 1980. Joanna Seddon, EVP of

Millward Brown Opmor, who oversees

the Brand Z Top 100 report, esmates

that brands account for about 30% of the

market capitalizaon of the S&P 500

around $4 trillion of the S&Ps $12 trillion.

Our research foretells a signicantloss of value for many brands that will jolt

business and investors alike. Markets have

pushed brand values to unsustainable

levels.

Brands, customer goodwill,

trademarks, company reputation

Contracts, licenses,

legal monopolies, customer lists

Organizational models, software

investment, proprietary processes,

franchise rights

R&D, patents, human capital,

intellectual property

Brand

Market Position

Business System

Knowledge

Intangible

Assets


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MAPPING BRAND METRICS

Our discovery of the brand bubble

has been developing over years. In 2004,

we began analyzing many consumer

variables based on our years of BAVdata. To our astonishment, we found that

consumer rangs on four key classical

atudes towards thousands of brands

Trust, Awareness, Regard and Esteem

had fallen into a double-digit decline. The

numbers were basically saying consumers

know brands well, but they are hardly

inspired to buy them. This discrepancy

was puzzling. How could brand values

be rising when the data shows falling

consumer percepons?

Since that original 2004 analysis, we have

connued to witness erosion in tradional

brand percepons. In 2008, we found

further evidence of the bubble when we

examined the highest performing brandsin BAV on the basis of their contribuon

to intangible value creaon and found that

an increasingly small number of brands

account for a disproporonate share of

the value being created. Consumers are

reserving their devoon and dollars for

the truly special brands, leaving the rest to

ght for existence on a hosle terrain of

promoon and discounng.

Consumers are reserving their devoon and dollars for truly

special brands, leaving the rest to ght for existence

Percepon Reality

If brand value is increasing, so shouldbrand trust.

Brands are less trusted than ever.Trustworthy rangs dropped

almost 40% over the last 9 years.

If brand value is incresing, brands

should be more liked and admired.

Brands are less liked and respected.

Esteem and regard for brands fell by

12% in 2 years and very few brands

are widely regarded.

If brand value is increasing, brands

should be beer known.

Brands are less salient than ever.

Awareness of brands fell by 20% in

13 years.If brand value is increasing, quality

percepons of brands should be

increasing.

Consumers feel brands are less

quality. Brand quality percepons

fell by 24% over the last 13 years.

If brand value is increasing, there

should be more consistently strong

naonal brands.

People arent naturally gravitang to

leading brands. Only 3% of naonal

brands are consistently strong in all

nine regions in the U.S.


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BRAND Rx: ENERGY

Queson: How are the brand

superstarsApple, Nike, Virgin, Whole

Foods, and Google escaping the bubble?

How are they creang such wondrousrelaonships with consumers? Answer:

They inspire us with creavity, excitement

and innovaon. Theyre not just dierent;

theyre always dierent. They furiously

redene their Dierenaon, invenng

new ways to keep it vibrant. And thus, our

noon of Energy was born.

The back-story: In a study in the

early 1980s, Robert Jacobson, the Evert

McCabe Disnguished Professor of

Markeng at the University of

Washington, found that investors andanalysts look at a companys markeng

and brand measures and act on

expectaons prior to the release of

accounng data. He also discovered that

brand atude changes predict future

sales, earnings, and stock prices.

We teamed up with Jacobson as well

as Natalie Mizik, the Gantcher Associate

Professor of Business at the Columbia

University Graduate School of Business,

to create an analyc model using complex

stascal regressions with our BAV data,

along with nancial data from Standard &Poors COMPUTSTAT over 19882003 and

the University of Chicagos Center for

Research in Security Prices from 1993

2003. We began comparing brand

aributes with market performance,

seeking to idenfy which combinaon of

variables best explained unancipated

changes in stock price.

We found that some brands were

constantly creang atude changes

which kept driving their nancial

performance. They pulsed with a creave

life force- Energy. Jacobson concluded:Consumers want to believe a brand is

dierent, and will keep being dierent to

sasfy their needs in the future.

Under the ecient markets

hypothesis, stock price reects both

the current protability of a rm and

expectaons of future earnings. The

model is built on the hypothesis that

Brands with Energy


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brand impacts stock return in two ways:

First, the indirect eect, where changes in

brand equity impact current protability.

A stronger brand leads to more sales

and, all other things being equal, higherearnings in the current period, which in

turn generates changes in stock price.

Second, the direct eect, where changes

in brand equity inuence expectaons of

future earnings. A stronger brand today

will probably be a stronger brand in the

future and will drive more sales this

measurement of the strength of the brand

had never before been as accurately

reected in current protability measures.

Analyzing our BAV data, we found that

a brand with Energy:

Has velocity and direcon: The brand

radiates the sense that theres more to it,

which captures peoples imaginaon. It

ENERGIZED DIFFERENTIATION

Once we idened Energy, we

quesoned what funcon it served

to bolster brand value. The answer:

Energy boosts Dierenaon. As Peter

Stringham, CEO of Young & Rubicam

Inc., puts it, Brands that keep moving,

keep changing, keep innovang create an

enrely new form of Dierenaon,

which we call Energized Dierenaon.

We began comparing Dierenaon to

Energized Dierenaon and building

them together to create Energized

Dierenaon.

The brands with Energized

Dierenaon connect beer with

consumerscommanding greater usage,

consideraon, loyalty, and pricing power.

As Woody Allen says in Annie Hall, A

always hints at that next something.

Constantly reinvents itself: It is

adventurous and full of ideas, and

brings innovaon and surprise to the

marketplace.Engages consumers: It is disncve and

authenc, oen with deep values and a

point of view on the world beyond prot-

making.

Aracts without chasing: With its

magnesm, it draws people in without

pandering or persuading. It galvanizes

consumers to join in.

Moves culture: Oen, the brand becomes

a catalyst for change, a spark that fuels

movements, mantras, social networks,

and communies.

It is not essenal that consumers

sense all ve of these percepons; one

can be sucient. But, the more Energy a

brand has, the more powerful it becomes.

relaonship, I think, is like a shark. It has

to constantly move forward or it dies.

Energized Dierenaon prevents brands

from dying.

We also discovered that Energy is not

a funcon of brand maturity. Many older,

established brands have as much Energy

as younger, ashier, brands. Dr. Pepper,

Bacardi, and Dove are all highly Energized.

Surprisingly, we found that Energyplays a role in commodized sectors,

where brands usually struggle to build

loyalty because they lack a meaningful

point of dierence. The airline industry,

for example, is driven predominantly by

price, convenience, and availability; with

typically low customer sasfacon rangs.

We expected that airline travel would be a

Brands with Energized Dierenaon

connect beer with consumers


8/16

low Energy category. But our

data indicated that Virgin,

JetBlue, and Southwest

have relavely high Energy.

Because they are innovaveand customer-focused, their

levels of Energized

Dierenaon translated to

almost twice as much loyalty

as that of other airlines.

We observed that

Energized Dierenaon can

rekindle even well-established

brands. In fact, it almost

seems that consumers have a

short-term memorythey are willing to

discard past impressions and see even a

very familiar brand in new ways. We see

this in Lazarus brands like Puma, Adidas,

Converse, Gucci, Coach, Burberry, Marks

& Spencers, Izod and Cadillac. And then

theres Dove, which has lately elevated

itself from its simple product aribute

focus (one quarter cleansing cream)

to engaging in a cultural conversaon

with consumers (reframing societal

percepons of beauty). Dove proves that

the most ordinary of objects can again feel

extraordinary. Energized Dierenaons

role in keeping brands constantly forward

thinking and evolving is crical to

maintaining ongoing consumer appeal,

loyalty and enduring success.

100

100

Average Yearly Change

Top usage +6.4%

Top preference +4.8%

Average Yearly Change

Top usage -0.4%

Top preference +0.4%

Brand Stature

(Esteem and Knowledge)

BrandS

trength

(Energized

Differentia

tionandRelevance)

80

80

60

60

40

40

20

200

0

Momentum


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OUR METHODOLOGY

BrandAsset Valuator is constructed around four pillars: Energized Dierenaon,

Relevance, Esteem and Knowledge. The pillars are in two categories:

Brand Strength, a leading indicator, predicts future growth. Energized

Dierenaon reects the brands direcon and pricing power. Relevance indicatesits appropriateness and meaning to consumers.

Brand Stature, a lagging indicator, shows the current value. Esteem shows how

consumers regard the brand now. Knowledge indicates consumers degree of awareness.

These four pillars help us idenfy the movement and success of a brand. The way the

four pillars interact yields valuable informaon about a brand at a given point in me. The relaonships between the pillars illuminate a brands health and suggest

strategies to drive brand equity.

Brand Strength

Leading Indicator

Future Growth Value

EnergizedDifferentiation

A brands unique

meaning, with motion

and direction

Relates to margins and

cultural currency

RelevanceHow appropriate

the brand

is to you

Relates to

consideration

and trial

EsteemHow you regard

the brand

Relates to

perceptions of

quality

and loyalty

KnowledgeAn intimate

understanding

of the brand

Relates to awareness

and consumer

experience

Brand Stature

Lagging Indicator

Current Operating Value


10/16

When we chart a PowerGrid of Brand Strength against Brand Stature, we canpaint a forward-looking picture of performance. We can chart one brand or

thousandscreang a constellaon that compares brands. A PowerGrid plots brand

performance in one of four quadrants, each indicave of a brands status. Starng at

the lower le and moving clockwise, we have:

The New and Unfocused QuadrantThese have lile Brand Strength, with low

scores in either Relevance and/or Energized Dierenaon. Many are new to the market.

Others are poorly dened, middling brands that have lost their way.

The Niche/Momentum QuadrantWith low earnings but high potenal, these have

Energized Dierenaon and Relevance, but only a small audience knows that.

The Leadership/Mass Market QuadrantThese brands have high earnings, high

margin power and the greatest potenal to create future value. Theyve built both

Brand Strength and Stature. If they slip down below the diagonal, their Stature has

become greater than their Strength. Brands in this posion oen maintain their

category leadership, but are losing pricing power and future growth potenal.

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Documents

Brand Bubble Excerpt