The world today is very different from what it was only a couple of decades ago, and these structural changes have placed brands at the forefront of business success. A review of stocks in the S&P index shows that businesses that own the strongest brands perform significantly better than other businesses.
Business leadership and brand leadership have become inextricably linked, and a study by Millward Brown Vermeer highlights the shift that has taken place. The analysis found that in 1980, virtually the entire value of an average S&P 500 company consisted of tangible assets (factories, inventory, etc). Now, in 2014, tangible assets account for less than 30 percent of a company’s value. The rest is intangible value, and about half of that intangible portion, close to 35 percent of total business value – is attributed to brand. Therefore, it is not a stretch to say that for many companies, brand is their single biggest asset. What has led to this change in what matters to business success?
The technological advances of the 20th century generated more prosperity than ever existed before. Consumers in developed markets had now almost limitless choice in nearly every category, including many new categories that were created as companies innovated in new spaces.
Abundance and prosperity have allowed companies to redefine what consumers “need.” Yet wealth hasn’t necessarily made us much happier. As Daniel Pink writes in A Whole New Mind, “The paradox of prosperity is that while living standards have risen steadily decade after decade, personal, family and life satisfaction haven’t budged. That’s why more people – liberated by prosperity but not fulfilled by it – are resolving the paradox by searching for meaning.” This quest for meaning has huge implications for brands.
As people find their basic consumption needs satisfied, brands are uniquely positioned to help add a higher order of meaning and fulfillment, not only to purchase decisions but also to the lives of consumers.
What used to be sufficient for a company’s success – an excellent product and superior execution of service delivery – are now merely table stakes. As consumers focus on higher meaning in their brand choices, companies have a unique opportunity to reinvent themselves through their brands. Unlike products, brands are impossible to imitate. A brand is the unique place occupied in the customer’s mind by a product or service. Therefore, when a brand has carved out a unique position in people’s minds and enjoys a strong connection with its customer base, it has created the ultimate source of differentiation and therefore competitive advantage.
Visionary business leaders have anticipated this and carefully invested in their brands, making them the cornerstones of their business strategies. It is not necessarily the amount of investment behind the brand that has made the difference, but the fundamental principles these leaders have followed. This gives rise to the question: how have brands driven business success?
Meeting the demand for meaning
The answer is that brands have the unique ability to tap into the pursuit for meaning in commercial life, because both brand and meaning are intangible. They operate on the same plane of human existence and consciousness. So which brands will be most successful at connecting with their customers? A simple look at the brands that have created the most value over time can provide clues to the answer.
From a global perspective, the three largest brands today according to BrandZ Top 100 are Google, Apple and IBM. What do they have in common? Although all three can be generally described as technology companies, they are wildly different in terms of their business models, their products and their customers. Yet all three are at the top of the list. What sets these brands apart from their competitors is an orientation towards a larger brand purpose, which transcends the product they sell. Since its inception, Google has single-mindedly focused on the ideal of liberating people through the universal availability of information. IBM has taken on the task of helping create a smarter planet, and Apple has invited people to create their world through self-expression, to “think different.”
Therefore, the brands that have created the largest connection with their audiences – and the largest value for their companies – are those that stand for true ideals, because ideals directly tap into people’s quest for meaning.
Jim Stengel, formerly the global marketing officer of Procter & Gamble, and arguably today’s most influential marketer, is propagating the movement of “Brand Ideal” as the way to explain the role of brands in driving business leadership. He identifies the conceptual elements of the brand ideal, quoting, “A brand ideal is a higher-order benefit that a brand gives to the world that actively improves the quality of people’s lives and creates a meaningful goal for the brand that aligns employees and the organization to better serve customers.”
To create a brand ideal, a company must identify a higher calling than simply selling its product. This ideal drives innovation and inspiration, enhances recognition, and unifies the organization in delivering against it. It not only informs business strategy, it is essentially the business strategy.
Brand ideals are not proprietary to large brands. An amazing example of a smaller brand that has successfully applied an authentic brand ideal is Method. Method surprised consumers by bringing design and emotion into the mundane category of home cleaning products. Its brand ideal, to inspire a healthy, happy home, created the aspirational lifestyle of a “Method home.” Method built a culture that reflects its values, as suggested by the slogan “People against dirty,” and engaged its advocates in exciting and inclusive ways. The result has been Method’s astonishing growth into an over $100 million company in only seven years.
Brand ideals drive business success
A shocking 87 percent of consumers say they are likely to switch to a brand that is associated with a higher purpose. While many companies have focused on cause marketing or corporate social responsibility (CSR), humanitarian goals are neither a prerequisite nor a sufficient condition for a brand to have an ideal. The ideal needs to serve and make reference to universal human truth, but that truth does not always have to be connected to a social value. For example, Amazon has developed to become a business worth $1.5 trillion based on a brand ideal that does not have a humanitarian bent. CEO Jeff Bezos’s original vision of online book retail has manifested into the infinite space of delivery. The company has demonstrated that it will go to great lengths – the most recent development being drones – to get customers their purchases with unprecedented speed and reliability. Despite lacking a philanthropic ideal, their ambitious and creative efforts have been wildly successful. Their services now play in the same spaces as shipping providers, e-readers, clouds and cell phones, all with the ideal of creating unparalleled consumer retail experiences.
The ultimate test of the authenticity of a brand ideal lies in the degree to which it permeates the business and provides a compass for everything the company does. As Stengel says, the brand ideal serves as an internal organizing principle. This has a tremendous impact on an organization’s alignment as well as the behavior, satisfaction and retention of its employees. When a company is organized around its purpose, it allows the brand to show up in the world with an intentionality that is instantly apparent.
In Mexico, our 6th most valuable brand, Bodega Aurrerá has exemplified the impact of a brand ideal. Through its long history of offering affordable products to the Mexican consumer, the brand has built a powerful connection around nostalgia and authentic, traditional Mexican retail experiences. While many stores ignored the low SEL target, Bodega Aurrerá connected with the consumer through accessibility, even in urban areas, capitalizing on a large and untapped market. The brand has since inspired imitators and stimulated renewed interest and market competition through its ideal of bettering the lives and retail experiences of millions of Mexicans.
So is the importance of brand and brand ideal a permanent structural shift in the way we conduct our economic lives, or is it a transitory phenomenon? The answer to this question can be found in the very roots of this shift from product to purpose. As long as global output expands through technological advances and prosperity reaches a larger number of consumers, brand ideals will not only drive business success, but their importance will continue to increase. Therefore, the businesses that make it their priority to organize around a higher purpose will continue to be the leaders of the 21st century.
CEO Millward Brown Vermeer, Millward Brown