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The Evidence Is In: Brand Architecture Matters

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At Straightline, we are dedicated to creating brands that transform businesses. That's why we've compiled the most compelling research on the impact brand architecture can have on business strategy.

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The Evidence Is In: Brand Architecture Matters

  1. 1. The Evidence is in: Brand Architecture Matters Straightline | April 2019
  2. 2. The value of brand extends beyond its ability to inspire Straightline | 2
  3. 3. Research has shown that brands make a significant part of a company’s intangible value Intangible value has become the greatest asset for today’s S&P 500 companies. Brand makes up a significant portion of intangible value along with other intangible assets like patents and goodwill. Brand value Other intangibles Intangiblevalue ComponentofS&P500 Marketvalue1 17% 32% 68% 80% 80% 84% 0% 20% 40% 60% 80% 100% 1975 1985 1995 2005 2010 2015 Tangiblevalue Intangiblevalue DetailedBreakdownof S&P500Value2 26% 20% 54% 0% 20% 40% 60% 80% 100% Tangible value Brand Other intangible assets Source: 1. Ocean Tomo LLC (2015) Annual Study of Intangible Asset Market Value; 2. Type 2 Consulting (2017) How much of enterprise value is brand? Straightline | 3
  4. 4. With a clear positive correlation between brand and shareholder value Meaningfulbrandsdrive superior shareholder returnsover time Strong brands are the foundation for outperforming the market and are a valuable asset in times of financial crisis. S&P 500 97.1% 47.5% MSCI BrandZTM Strong Brands Portfolio 153.7% BrandZTM Strong Brands Portfolio vs. S&P 500 vs. MSCI World Index1 (April 2006 – October 2017) Apr 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Oct 2017 Source: 1. BrandZTM / Kantar Millward Brown including data from Bloomberg (2006-2017). Straightline | 4
  5. 5. Brand positively influence the relationship with customers, investors, and employees 50% 28% 15-20% 30% 20% higher customer loyalty for B2B companies with a strong brand3 lower employee turnover rates compared to companies with a weak employer brand5 more effective employee recruiting compared to companies with a weak brand4 of purchase decisions in all B2B markets are driven by brand1 price premium for strong brands in the B2B market, over weaker brands in the same industry2 Sources: 1. McKinsey (2015) The brand is back: Staying relevant in an accelerating age; 2. Bick & Bendixen, 2009; 3. Taylor, Celuch & Goodwinn 2004; 4. International Journal of Organizational Analysis 2014 5. LinkedIn (2011) What's the Value of Your Employment Brand?; 6. Reuters (2014). 82% of investors believe a strong brand is very important in their investment decisions6 Straightline | 5
  6. 6. How do you create brand value? Customer experience Messaging Verbal & visual identity Employee engagement Brand positioning Leadership support Brand Value Brand architecture And more… Straightline | 6
  7. 7. Research shows the important role brand architecture plays in driving brand value Customer experience Messaging Verbal & visual identity Employee engagement Brand positioning Leadership support Brand Value Brand architecture And more… Straightline | 7
  8. 8. There is a range of brand architecture options, each with implications for the business MASTERBRAND Advantages: ‒ Efficient marketing ‒ More focused communications ‒ Suggests one standard of quality, and seamlessness Disadvantages: ‒ Hard to spin off ‒ Riskier in a crisis MASTERBRAND + SUB-BRAND Advantages: ‒ Superior returns through shared brand investment ‒ Corporate brand and sub-brands share equity and awareness Disadvantages: ‒ Easy to negatively impact the corporate brand through sub- brands (and vice versa) HYBRID BRANDING Advantages: ‒ Encourages “independence” ‒ Highly flexible ‒ Used when seeking to promote “killer app: brand” Disadvantages: ‒ Can be confusing for users ‒ Requires equity sharing ENDORSED BRANDING Advantages: ‒ Allows the corporate reputation to become a marketing asset ‒ New brands or products can borrow awareness and acceptance from corporate brand Disadvantages: ‒ Ability to extend the corporate brand may be limited HOUSE OF BRANDS Advantages: ‒ Insulates individual brands ‒ Allows for competing brands ‒ Enables more micro-level segmentation Disadvantages: ‒ Expensive to maintain ‒ Requires active brand management Straightline | 8
  9. 9. Masterbrand + sub-branding has proven to deliver significantly higher returns 0 0.2 0.4 0.6 0.8 1 1.2 Branded House Sub-branding Hybrid Endorsed branding House of brands Returns associated with eachbrand architecture1 A study in the Journal of Marketing Science found consistent brand architecture can significantly influence firm valuation. Sub-branding provides the benefits of a branded house while also leveraging the strengths of secondary brands. Source: 1. Journal of Marketing Science (20156) Brand architecture strategy and firm value: how leveraging, separation, and distancing the corporate brand affects risk and returns. Varianceofstockreturns Straightline | 9
  10. 10. Brand architecture management is a particularly significant consideration during M&A Newly merged companies generally underperform the market by 5-7%.1 The right branding decision can make a significant difference in the returns over the first three years. Research published in Harvard Business Review2 evaluated three categories of brand architecture used during M&A. 1. Backing the stronger horse (also called assimilation or acquisition) elevates the stronger brand, typically the company making the acquisition (e.g., Airborne Express becomes DHL) 2. Business as usual allows both brands to continue to exists though only one is used at the corporate level (e.g., P&G maintains Gillette brand) 3. Fusion combines the bestelements of both brands to create a merged identity (e.g., Exxon and Mobile become Exxon Mobil) Source: 1. Type 2 Consulting (2013) Brand Strategy and Mergers: Is Brand Still a Significant Variable? 2. Harvard Business Review (2011) Why Fusing Company Identities Can Add Value. Straightline | 10
  11. 11. There is a clear benefit to pursuing a highly collaborative brand architecture strategy There was a 35% difference in stock performance depending on the strategy chosen (+10% vs. -25%).1 Backing the stronger horse or taking a business- as-usual approach resulted in merged companies underperforming the market by 20- 30%, respectively.1 Companies that pursued fusion outperformed the market by 10%.1 Cumulative abnormal returns for buy and hold1 (measure from the merger completion date) Source: 1. Type 2 Consulting (2013) Brand Strategy and Mergers: Is Brand Still a Significant Variable? Acquisition Business as usual Fusion Straightline | 11
  12. 12. Want to learn more? Straightline | 12
  13. 13. Send us an email to have a conversationabout your brand. Denis Riney Principal North American Strategy Riney@StraightlineWorld.com Straightline | 13
  14. 14. Straightline is a full-service corporate branding firm dedicated to creating brands that transform businesses. Founded by Michael Watras, an internationally recognized corporate branding expert, the firm has deep experience in a variety of B2B and consumer- oriented industries, including Allergan, Walgreens Boots Alliance, ABB, and Gentherm. With offices in New York and London, Straightline delivers integrated strategy, design, and employee engagement services, working with client teams and agency partners. All of our branding work is driven by business strategy, with an emphasis on helping clients grow faster and compete more effectively. About Straightline Straightline | 14
  15. 15. Thank you! Straightline | March 2019

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