Of Building and Pricing Brand Value
The world revolves around value. Creating it. Selling it. Buying it. We all know it when we see it, solid as the Rock of Gibraltar where moments before there was nothing. But what exactly is value?
Critical to our understanding is the realization there are two parts to the process, the first being the creation of appreciated value which is separate from and followed by the pricing of it. In today’s economy where so much monetary value has been eradicated there is a heightened urgency for all things related to value (re)creation. Important as these new activities are to rebuilding, we must not lose sight that much of how the consumer deems things to have value is grounded in psychology as much as the tangible.
While value is a dynamic construct that can be created, destroyed or transferred with the speed of thought, we don’t often see or report on its full dynamics. As a consequence of our measurements* we end up with an constrained view of the free market fluctuations consumers otherwise communicate to us regarding the proffered value.*most retail pricing tends to be fairly static (within a prescribed range) and the lack of reporting on failed purchases
Fittingly our starting point begins with what economist call the subjective (marginal utility) theory of value which holds an item has no inherent value, until there is a shared and agreed upon:
- need or want that is satisfied by the value source, and
- a perceived or real constrained supply of the value source, otherwise an over-supply (ie free goods) can lead to de-valuation.
Perhaps the greatest contribution this theory brings is the formal recognition that value (creation or transference) can only thrive in a win-win environment. While economist debate value and point to its ‘invisible hand’ guiding the upward transformation and redistribution of economic resources from lower to higher value states, business tends to be more pragmatic.
Michael Porter’s seminal work, Competitive Advantage advocates conducting a ‘value chain‘ analysis of a company’s internal processes and the interactions between key elements of the firm (inbound and outbound logistics, operations, marketing/sales, service) and customers in order to determine how and where value opportunities might exist. But to understand the context in which the value chain competes in, one must appreciate the generic strategy (Competitive Advantage Vs Competitive Scope) the enterprise is embarked upon as well as the Five Forces (Bargaining power of Suppliers and Customers, Threat of new entrants, Substitute products and Competitive rivalry within the industry) acting upon it.
Treacy & Wiersema (The Discipline of Market Leaders) put forward a customer centric model more reflective of the current competitive global technological landscape.
Customers today want more of those things they value. If they value low cost, they want it lower. If they value convenience or speed when they buy, they want it easier and faster. If they look for state-of-the-art design, they want to see the art pushed forward. If they need expert advice, they want companies to give them more depth, more time, and more of a feeling that they’re the only customer. pg 4
In their view a firm must select and excel at one of three value disciplines as a core operating model, while remaining adept at the other two:
operational excellence – executional excellence featuring an unmatched combination of quality, price and ease of purchase/hassle free service.
product leadership – the pursuit of innovation to continually redefine the consumers view of the category to one’s advantage.
customer intimacy – the pursuit and actioning of customer centric insight and sensitivity into the client’s underlying problem to deliver a personalized brand offering that helps customers achieve their success transforming the way the customer does business.
Each path then frames the key value activities the enterprise has to complete in order to consistently deliver the customer’s desired value.
However structural and technological market changes have led to refined thinking (see Moore: The Death of Competition, Nalebuff & Brandenburger: Co-opetition) . The broader view is that competition can lead to mutual cooperation that helps keep new entrants at bay, reduce total cost among participants and drive creative destructionism. This helps motivate a higher degree of customer relevancy that firms acting on their own volition might not have otherwise evolved fast/far enough and keep customers from seeking out alternative solutions. This reflects Taleb’s (The Black Swan) notion of ‘hidden’ risk where the absence of healthy competition is an unnatural economic reality… eliminating or weakening the enemy one knows can/will lead to emergence of an enemy one does not know…or as the saying goes “Keep your friends close and your enemies closer”.
Emerging also from this body of knowledge is the shift toward co-creational value building. What was once a top-down activity – where value happened “TO” or “FOR” a customer (operational excellence and product leadership) as a result of the enterprise’s ability to create the desired widget or experience, now includes a full circle/ecosystem of cooperation to create superior value.
This broader perspective appreciates the supremacy of the customer’s viewpoint of the value exchange. This is important because it runs counter to the management practices of many enterprises, where speed and metrics of business success have forced the enterprise to configure itself and its activities to generate immediate results for shareholders. Consequently marketers have drifted from pursuing value enhancement and value communication and instead, focussed more on the price management of value.
But in this new economic and market landscape – the price and value assessments of brands , not unlike the stock market have undergone significant transformation due to changed personal economic circumstances, priority realignment and de-leveraging of personal credit. McKinsey characterize this environment a structural break and opine that,
The wrong way forward in a structural break during hard times is to try more of the same. The break and the hard times are sure indications that an old pattern has already been pushed to its limits and is destroying value.
Hence there is a new imperative and window of opportunity to rebuild the value and value perceptions of one’s new/changed brand franchise. To do so marketers will need to rebuild the brand value dimensions available to them and take this opportunity to establish a more compelling pricing of that value.
In the next section we will review the 6 dimensions (Iconic, Societal, Potential, Integration, Experiential and Designed Consumption) available to them. See: The Six Forces of Brand Value