John Gerzema is the Chief Insights Officer for Young & Rubicam and he is also the co-author of top selling business book, The Brand Bubble. He was kind enough to explain his theory behind the misevaluation of brands, why McDonald’s makes a good study and why agencies need to get in on the game.
1. In your book, you assert that despite rising valuations, that WSJ has overvalued brands. How can those playing the stock market determine who is actually worth their stock price? Is there an at home way to sort out the bloated brands from the properly evaluated?
“The brand bubble represents the growing disparity in the value that business and consumers apportion to brands. We found the multiples that markets place on brand valuations overstate actual consumer sentiment. In essence, Wall Street thinks brands are worth more than the consumers who buy them.
We reached this conclusion through extensive analysis, but in our book we detail an easy method that anyone can use to assess their brand’s value. First we want to understand if the brand has what we call energized differentiation – the consumer perception of motion, difference and direction. We measure this through BrandAsset Valuator, which strongly correlates to a brand’s pricing power, loyalty and contribution to financial return (e.g. The brand value is delivering, if not exceeding its expectations set by market valuations). To get people started, we’ve opened up our database for free on our website, thebrandbubble.com.”
2. What’s the story behind the BrandAsset® Valuator, which is how you determine the health of a brand? How did you come up with that?
“BrandAsset Valuator is the world’s largest global database on brands, and because of its scale and longevity, it is recognized as a reliable diagnostic tool for understanding how successful brands are built. It was devised by Peter Georgesceu and Alex Kroll, who were looking to find ways to better understand and quantify brand/consumer behavior. Sixteen years later we’ve invested almost $115 million dollars in our study. Each year we interview almost 500,000 customers in 44 countries across 40,000 brands on more than 70 brand metrics. We conduct surveys in more than forty languages. From Arabic to Zulu, we ask consumers how they feel about local, regional, and multinational brands, media, and celebrities. And importantly we can look at brands outside their categories and study consumer perceptions over time.”
3. What brands are most in trouble? Are there any brands that have nothing to worry about?
“The Brand Bubble is endemic to many brands. We found Across 2,500 brands in our survey that brand awareness declined 20%, brand esteem was down 12%, perceptions of brand quality eroded by 24%, while trust in brands declined by a staggering 50%. Then we realized that almost 80% of brands in our study were not gaining in differentiation. And of those that were not simply standing still were twice as likely to be in decline. Until we reinvent our approaches to marketing and put the consumer and brands at the center of our business strategy, we’ll continue to see far too many overvalued brands. ”
4. Can you give us an example of how a brand has revalued and reorganized successfully?
“When we examine McDonald’s ten years ago, there was a sharp contrast between its brand value and its true value. Consumers were shorting McDonald’s because they felt it was losing its way. McDonald’s was perceived as unhealthy, commoditized and it has lost its cultural significance. Today, McDonald’s has returned to its core values of family, community, cleanliness, quality and value. It began a continuous stream of innovation that’s resulted in healthier items like salads, wraps and new experiences like cappuccinos and lattes. Realizing that behavior was changing, McDonald’s reconfigured its drive-through experience, while limiting expansion and focusing on service and operations. We witnessed significant bumps in loyalty, usage and other imagery dimensions in BAV. And McDonald’s and Wal-Mart were the only two companies whose share price rose in 2008.”
5. Is this in-depth analysis of the brand something that agencies should be doing for their clients? Should this be part of agencies offerings for clients?
“Armed by social media, search and in the face of fragmentation, Consumerism has completely changed. But most of brand management is actually ‘brand maintenance’. As marketers, we try to control brands in a world where control now longer exists. Our ability to be effective starts at the question of basic value. What is the consumer willing to pay for our brands and how can we make them more valuable through marketing, product and service innovation and other techniques to improve the brand experience. Follow the money…”