How shifts in brand value are affecting the client - agency relationship. By Elle McCarthy, Global Head of Planning at BBDO and keynote speaker on gender and language.
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Noun: Un.i.corn
Increasingly when talking to other advertising agency strategists, it seems as though we are being asked to write the business case for brand value over and over again. I don’t mean the all-too-familiar wash and repeat of selling in an advertising idea using the latest Binet and Field data. No, I mean the value of brand itself, as it relates to a company’s market value.
This is odd. Surely us agency heathens are less qualified to talk about brand value than the business elite that we serve. I’m not fifty grand in debt for my MBA - damn I don’t even have one. But these requests keep coming with increasing frequency despite brand value being a well established financial concept.
For other non-MBA-ers like me, the textbook definition of brand value is: ‘The net present or future value of a company’s cash flows attributable to the brand name or brand personality. A brand is an intangible asset of a business, and helps differentiate between a company’s book value and their market value.’ Perhaps this begins to make sense of why the idea of brand is so constantly held in question.
Believing in brand value is like believing in unicorns. They are both, by definition, ‘intangible’.
When I was growing up I wanted to be Ally McBeal. There’s a scene in Season Two where she bonds with a client who claims to have been fired for seeing a unicorn, because she too saw a unicorn in her youth. The point of the segment seemed at the time, to mean that you could only see unicorns if you believed in them. As a lonely child who desperately wanted a magical friend, I swore that I would always believe.
Believing in brand shouldn’t be hard - there’s a swathe of data proving its value. Strong brands generate stronger shareholder returns (Interbrand), strong brands recover the fastest after a recession (BrandZ), strong brands deliver higher return on investment from their marketing spend (IPA)... I could go on. But somehow this concrete proof doesn’t seem to have become accepted wisdom within most client businesses.
Even when the CMO agrees, they tend to want more arguments to take to the CFO.
A lot has shifted over the years to make the concept of intangibles increasingly uncomfortable. In 1975, eighty three percent of the S&P 500 was tangible. It existed in factories, outlets and distribution networks - you could see it with your eyes and hold it in your hands. So intangible value made up a small part of most companies. It probably wasn’t too troubling that it wasn’t easy to define. But by 2015 the market had flipped to eighty four percent of global brand value being defined as intangible.
It’s important to note that during this time, the mythical creatures themselves, have evolved. Intangible value used to mostly be the licenses and copyright attached to a company’s products. But post-internet technology companies - who now make up the top ten strongest brands in the world - mostly deal in the monetization of data, blurring the lines between product, service and brand. This makes the difference between tangible and intangible value increasingly hard to define.
And it doesn’t only apply to pure technology companies, it extends to the disruptors of physical industries too. For example Tesla sells physical products but has the same tangible to intangible ratio as Apple. In contrast to the majority of the automotive industry who still have only between ten and fifteen percent of their market value classified as intangible according to 2019 Interbrand data.
What is a chief financial officer in a mature corporation supposed to do with this information - other than feel mildly alarmed and pretend it isn’t happening?
This is where agencies have arguably messed up the brand value narrative. At worst, we conflate ‘big ideas’ with the mission statements that have generated this bubble of financial brand value. True, mission statements aren’t solely the remit of newer corporations - Nike and Disney arguably set the precedent for mission-first brands. But older mission-led brands are few and far between, and their missions came from their founders, not their advertising agencies. Unfortunately, advertising agencies have built up their own mythology around how they deliver brand value. And in doing so, have mis-sold the role they can play.
Worse still, whilst agencies have been over-selling their ability to deliver mission statements, the bubble created by this hyperbole has started to burst. The rapid increase in intangible value was already being questioned by journalists and investors challenging how much reported brand value today will lead to cash value tomorrow, especially when so many of the highest valued companies are loss-making. But this debate has come to a head thanks to the extreme example of We Work’s over-valuation, leading the business world’s core understanding of brand value to go from “intangible” to as MIA as a unicorn at a sex party.
Scott Galloway’s brilliantly named ‘Yogababble Index’ shows the direct correlation between “the bullshit level of a company’s mission statement” and its stock performance post IPO.
Note the difference between Zoom and Peloton’s mission statements, and their respective positions at either end of the scale.
Peloton Mission: “On the most basic level, Peloton sells happiness” (Bullshit rating 9/10)
Zoom Mission: “To make video communications frictionless” (Bullshit rating 1/10)
What this index also shows, is that the strongest brands are built from the inside out. Because mission statements create value when they inform every thing that every person who works for the brand does every day. Anyone at Zoom can decide whether something they’re doing is removing or adding friction - that is a simple mental equation. But the poor sods at Peleton may struggle to ‘create happiness’ in every action they take - once the exercise-high wears off. So the idea that a mission statement can be retrofitted onto a brand by an external party is problematic.
This doesn’t mean that all brands don’t need agencies. Many organizations don’t yet have the skill-sets within them to create external fame and emotion for their missions.
But this is shifting - Apple built one of the largest in-house creative teams in a matter of months and not only won Cannes 2019 Creative Marketer of the year, but just surpassed Microsoft to retake their position as the most valuable brand in the world.
On reflection, I believe that our clients are right to be cynical about how agencies are selling brand value today. Mature businesses who don’t report over fifty percent of their value as intangible, may never get there. If these businesses try to plug the gap by advertising a highly selective picture of their ethical code to the most cynical generation of consumers ever, they are more likely to do harm than good. In summary, the repetitive arguments that agencies are making - to invest in brand - unfortunately don’t automatically mean investing in agencies.
So, as companies learn to look inwards for their brand value, maybe agencies as we know them will become extinct. This makes the people who work in them now the real unicorns - because their talent and their belief will continue to generate value for brands, even as that value evolves. You just might find them grazing at client-side pastures in the near future.
