Is there space for another, but perhaps better way to measure and manage brand growth? In times when marketers seem polarised between the visionary (and sometimes unpractical) brand purpose folks and the scientific (and sometimes limited) Byron Sharp followers, this article suggests an alternative that takes the best of both sides, born from the need to find true brand potential.
A Brand Strategist in Private Equity Land
At the end of last year, I kicked-off an initiative that always felt to me as a potential gold mine: explore ways to better serve the Private Equity market with marketing services. When evaluating new investment opportunities, those firms excel on the operational and financial engineering required to analyse potential acquisition targets, but proper brand due diligence is rarely part of the process (besides not being a key skill on the arsenal of those businesses).
As part of this journey, we had a few meetings with senior executives of PE companies to ask them about their key challenges and how they look at the 'brand component' of potential new investments. I’m not going to lie, in the beginning it felt a bit like Frodo's first days when venturing through the devastated lands of Mordor.
But different from our Middle Earth hero, I actually found very good and smart people, willing to help and give a solution. From the interesting insights that came out of those conversations, one stood out: a key winning formula of a successful investment is to find a business that is still currently small in scale, but has great latent potential to grow. In that way, the PE firm can get inside of the company's skin, reorganise its operations, tie disconnected dots, and pour money to see the cake grow, with an aim to hopefully sell it in five years with a decent premium.
With this context in mind, the question that landed in the table was: is there an opportunity to apply the same mindset to identify brands so attractive that they would justify a higher business valuation compared to other peers in a similar category? Private Equity firms will look at financial and operational KPIs, but is there an opportunity to look at brand and consumer KPIs? In other words, how do we identify brands that aren’t yet famous, but are giving enough signs of future potential?
The Alpha and Beta of Brands
The solution for this question requires a breakdown of brand as a business asset in two distinctive elements. One is related to the brand’s scale - its presence, familiarity and trust. The other is related to the brand's potential - its 'mojo', emotional resonance, superior quality and momentum with consumers
I’m calling the first element Beta, and the second Alpha. Let me give you a bit more detail on those.
Beta is composed by one key factor: Availability. It’s all about the brand's coverage (prompted awareness), salience (how easy it comes to mind), and trust. The trust element is important to qualify the type of presence we want to sustain - it doesn’t help if the brand is famous but have a bad reputation. If there is a formula to calculate Availability, that would be a measure of brand recall times the number of people aware of the brand, adjusted by a metric of brand trust.
Alpha is composed by two factors: Desire and Superior Utility.
Desire captures all the things that are special about a brand, but are hard to explain. Admiration, pride, novelty and a sense of “coolness” and “trending" are all elements encapsulated by this factor (think about the cultural hurricane created by Supreme or the respect and admiration people have for Patagonia). It is usually present in brands with an authentic internal culture (which should come with a visionary leader), superior design and a trust in the power of creativity.
Superior Utility relates to the brand’s ability to deliver exceptional performance on the most important functional category choice drivers (think about Amazon in driving extraordinary convenience, Netflix in offering the most relevant and diverse portfolio of movies available). It will usually come from an innovative use of technology applied to smart consumer insight.
Find a brand that provokes strong desire and offer superior utility and you get yourself a strong brand Alpha.
The beauty of the Alpha and Beta of brands is that the total value of the brand asset isn’t in the sum of those two elements. It’s in their multiplication. Beta is the most important component of value - Byron Sharp et al already proved that brand availability alone drives superior growth. But Alpha works as a multiplier of any increase in Beta.
In the context of the Private Equity firms, the key to successful investments relies on finding brands with a low Beta and a very high Alpha. Beta is relatively easy to create, and PE firms know it well: pour money on distribution, communications to all category buyers, and just make sure you have some consistency along the way. But the secret sauce is really baked in finding good Alpha, which should make the most of every $1 invested in expanding the brand's presence.
But how do we know this is a good way to think about brand growth?
One way of assessing if someing is of good quality is to look at its core origin. And the provenance of the Alpha and Beta of brands is that it reflects the ways of which brands generate value to us as consumers - the money it makes to businesses is a a consequence of that. Desire reflects our individual and social needs to stand out and to fit in. Superior utility reflects our natural search for ways to make our lives (and those of whom we love) easier and better. Finally, availability provides the 'under the radar’, support of signaling the brand and orienting our choices in a world of abundant options.
We can talk about how much desire is related to higher price premiums and margins, superior utility is related to higher customer acquisition rates and cross selling, and how availability leads to market share growth and lower business risk, but the safeguard of this framework is that it starts with the consumer.
Here’s how the key elements of Alpha and Beta come together:
And here is an example of how some brand fit the model:
One spectrum, two perspectives
Despite this framework being born with the needs of Private Equity firm in mind, I believe that it has the potential to be used more broadly as a brand management tool. In my view, it actually makes a good case in bringing together two apparent opposite perspectives that seem to be dominating recent marketing conversations.
On one side of this spectrum you have marketers that get excited about conversations around brand purpose, brand love and the meaning behind brands. This feels like the more creative, definitely more visionary side of marketing. There are very good things that I see as a result of this thinking: stronger creative work, more visionary strategy and unconventional innovation. The negative side is that, in many cases, the outputs are less tangible and have weaker links to business performance (at least, it’s weaker in demonstrating effectiveness).
On the other side of the spectrum you have all the ideas coming from the Ehrenburg-Bass Institute, encapsulated by Professor Byron Sharp. The clear, focused and data heavy scientific approach of Prof Sharp is hard to debunk, and has got a lot of traction in recent years, mainly in the CPG industry (look at results from MARS and P&G, among others). Many good things come from this marketing science spectrum, such as empowering marketers with evidence for strategic decisions and making the brand management task more assertive.
The limitation is in the fact that those ideas are based (mostly) on big stablished brands and rigidly settled categories, which may limit the scope for growth. We know that those brands compose only a small sample of all the good businesses out there, and that it is hard to establish boundaries for industry categories in times when everything changes so fast. New competitors emerge all the time from unexpected places and consumers expectations are shaped by completely different categories (see this HBR article for more on that).
Obviously, very few people are completely on one side or the other. I believe that the Alpha and Beta of brands serve well this middle ground by bringing together the best of the two lines of thought.
Beta is the source of scale and base growth, founded on the elements preached by Prof Sharp: broad and strong mental availability, driven by distinctive and consistent communications to all category buyers. Alpha is our best chance to add a multiplier effect to this equation, by improving Desire and Superior Utility, elements which require the non conventional, creative thinking that is fertile territory on the more visionary side of the spectrum (with some good collaboration with the engineering team).
Conclusion
This article started questioning the possibility of yet another, but perhaps better, way to measure and manage brand growth.
Born from the Private Equity world of managing potential and scale of businesses, the Alpha and Beta of brands fit as an alternative approach, bringing the best from two dominant and opposite views of marketing to the core of its construct. Most importantly, it has at its core the ways in which brands matter to consumers.
In doing so, it becomes a tool which both entrepreneurs of small startups and marketing managers of bigger brands can benefit from. The difference is on the focus required at different stages - smaller brands may want to start by rounding up their Alpha (naturally higher in - good - smaller brands) and building their Beta, while big brands will need to sharpen their Alpha as well as sustaining their Beta.
Many entrepreneurs like to say that they create the products and services which they would want to consume themselves. What gave me the confidence to keep going with this work was the satisfactory realisation that, from all of the frameworks out there, the Alpha and Beta of brands would be the one I would use to manage my own brand.
I hope you give it a try!
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People and books that inspired the Alpha and Beta of brands:
Decoded, Phil Barden
L2, founded by Prof Scott Galloway
Thinking, Fast and Slow - Daniel Kahneman
Prof Mark Ritson's columns at Marketing Week
How Brands Growth, Byron Sharp
Gareth Price's Simple-Collective-Tight framework
My work experience at Interbrand, having worked with dozens of clients in different industries
A special thanks to my colleagues at Interbrand, whom are an endless source of good discussions.
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