Q: What makes branding unique for business-to-business companies and is it as important for them as branding is for consumer product companies?
If your business provides products and services to other businesses, you can achieve the benefits of a strong brand identity in customer loyalty, buying preferences, and referrals to other customers. However, the relationship with your customer is far more complex than when compared with consumer product relationships. Business to business service companies must go above and beyond just satisfying the client’s transactional needs to create positive brand loyalty over time. Business to business brand loyalty has less to do with spending money to build awareness than being committed to a complete and systematic and relentless dedication to an idea that is expressed in every way that touches a customer by every employee, consistently across all communication channels, and sustained over a long period of time. Business to business companies often stumble when they fail to align all of their customer facing operational processes and people with the brand promise of the company.
Customers of business to business firms believe that every form of communication they receive from your business, and every interaction that they have with your company, of every type, all combine to form the sum of their customer service experience. Moreover, this experience endures over time, such that errors committed in the past will always remain part of the customer’s perception of their experience with the business, regardless of how well the business may be performing at present. Many companies mistakenly assume that as long as they have highly responsive customer service centers responding to customer calls and resolving issues quickly, then customers will be happy with their business overall. Recognizing the importance of delivering an experience that is consistent with your brand promise across every touch point with customers is the first step to truly differentiating your business.
When all those communications channels are aligned and delivering a consistent experience and message to your customers, then you will have achieved a high level of brand efficiency. When any of these channels fails to deliver on the brand promise, then your brand efficiency decreases. When efficiency decreases, there are direct consequences in customer satisfaction and retention, willingness to buy, direct costs required to repair or rework, and in overall financial performance as vital energy in the form of human and financial capital are redirected to address the deficiencies. When brand efficiency is high, then all systems and people in the company can focus most of their energy to serving the customer better, innovating new solutions, beating the competition, and moving the bottom line up.
Q: How do business-to-business companies go about establishing their brand identity and loyalty?
Businesses commonly assume that their marketing department will communicate their brand through advertising, literature, and promotional activities. While these are important, they are just one small dimension of the totality of communication and interaction that defines the overall customer experience. Indeed, if this was the only effort to implement and communicate a brand identity and build brand loyalty, then by definition it will conflict with all the other communications systems that already exist in the company. This will contribute new sources of communication inconsistencies (“noise”), add new costs to overcome them, and reduce the return on the investment in defining and developing the brand identity in the first place. Clearly the brand promise should be defined and measured across all of the communications systems of the company, including internal reward and recognition systems to encourage employee behavior in accordance with the brand values.
For example, have you ever heard in your business that the customer was sold something that differs from your ability to deliver? These can be product/service features, business terms, implementation schedules, service levels, all apparently promised by a sales person, and yet not consistent with the current capability of the business to deliver. In business to business customer relationships, the goal is to develop a long term sustained relationship with the customer. The longer the customer is retained, generally the more profitable the relationship, and the greater the ability to continue to produce revenue from that customer. What if, at the start of the relationship, the product or service does not do what the customer expected, or the business terms or billing processes are cumbersome and prove difficult to comply with, or the service levels are not consistent with expectations, or the product was not implemented according to the schedule that was originally promised?
Each one of these issues requires energy and investment by the business to overcome in order to get the customer on an acceptable long term path, albeit with slightly reset expectations. The customer has already experienced significant inconsistencies between the brand promise and the experience of that promise, before the relationship really gets under way. The cost of building brand loyalty with that customer is very high and efforts will continue to be expended over a long period of time as the company goes through extraordinary measures to restore its reputation with that customer and attempt to get the customer’s experience closer to the brand promise. Even simple failures can directly impact the reputation of the business, and the cost of overcoming them. There are many other reasons for the brand promise to be broken without any specific system, product or service experiencing any failure. The result is damaging and costly on brand loyalty, brand efficiency, and the long term cost of repairing and rebuilding the relationship, thus draining resources away from productive work and the bottom line.
Q: Can the costs of poor brand performance be measured?
The cost of poor brand performance is real and it can be measured. The elements of cost are tangible and often already measured by companies, including: rework, error correction, concessions, lost opportunities, and customer attrition. Each one of these elements increases your cost of service, selling, support, and overhead as remedies are implemented to correct them. These costs can have an exponential impact across the transmission systems: that is, each element or system that fails, or any inconsistency between them or against the brand promise tends to compound the noise in the communication and impact the perception of the customer. Why is there such a compounding effect? Remember that for business to business customers, the sum of all of their experiences and all the communications with your entire firm over time serve to create their perception of your brand. When one element disappoints the customer, it is automatically compounded by another element – even though they may seem totally unconnected from inside your company. Left unchecked, the customer’s disappointment will grow and negative perceptions will expand beyond simply the issues at hand to become a general perception of your whole business.
While the cost of negative brand efficiency may be difficult to measure precisely, the direct impact of poor performance and quality on each of the communications systems can be measured. Many businesses have sophisticated processes, software and even six sigma quality improvement programs designed to measure and improve that performance and increase profitability. These initiatives do not often measure systems across the enterprise and rarely, if ever, do they measure the effectiveness and consistency of communication and performance of all of these systems with the intended brand strategy of the business. Managing each one of those issues in isolation and not in a holistic manner aligned with the brand strategy will result in an exponential drain on energy and resources required to deliver sustained profitable growth.
Q: In addition to understanding the cost of poor execution, how can companies assess the value of their brand?
The Service-Profit Chain developed by Heskett, Sasser and Schlesinger (1997) from Harvard Business School establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. The Service-Profit Chain is made up several key linkages: profit and growth are stimulated primarily by customer loyalty. Customer loyalty is a direct result of customer satisfaction. Satisfaction is greatly influenced by the value of service provided to customers. Satisfied, loyal, and productive employees create value. Employee satisfaction, in turn, results primarily from high quality support services and policies that enable employees to deliver results to customers. Let’s say that you have high quality support services and polices, and your employee satisfaction surveys suggest your employees are happy. Does that mean your customers are in fact experiencing results that match or exceed you brand promise? Do satisfactory results really help you accomplish your goals of being the leader in your industry? What if the predominant culture of your employee base demonstrates a set of values that are not consistent with the values of your brand promise? What if different parts of your employee population that come into contact with customers have quite different cultures and values? Does your sales force demonstrate the same behaviors and in the same manner and style as your customer service organization?
Such inconsistent behaviors between employee groups, and between employees and the brand promise, create disjointed experiences for customers who will find that they are constantly adjusting to your company’s different styles, behaviors, standards of performance, and promises. The customer will quickly conclude they don’t know what you stand for, and they won’t know how to describe their experience with you – perhaps other than “clumsy”. This makes it very difficult to develop a sense of affinity and loyalty with your company. While the Service-Profit Chain model provides an essential foundation to assure that your employees are delivering results to customers, a focus simply on employee support services and policies will not result in employees delighting the customer and delivering on your brand promise. You need a defined employee culture, measurements, and reward and recognition system that aligns behaviors consistent with the brand promise of your business. This strong link and consistent behaviors will strengthen the bond of loyalty with your customers, lower the cost of support service, and accelerate brand efficiency and sustained profitability.
In financial terms, the value of a brand can be a significant component of the value of the company. The price paid for acquired businesses is frequently substantially higher than the appraised value determined from the tangible assets of the company. According to a study in 1995: “the average market value of all American-based publicly traded companies was 70% greater than their replacement cost (e.g., their tangible net asset value.)” 1
Assessments of the actual brand value of a business to business services company should include the internal business processes and communications systems to determine how effectively the various functions and people are aligned to deliver performance consistent with the brand promise of the company. Unrealistic prices can be paid for brand value that may be more tied to market awareness and market share, than any real capability of the company to underpin its brand equity with real sustained performance. Brand value should be discounted by elements that fail to deliver effectively, or where significant inconsistencies exist between the company and its customers’ expectations for the future.
Consider the case of Philip Morris: “In 1989, Philip Morris paid $12.9 billion for Kraft, six times its net asset value. According to Philip Morris CEO Hamish Maxwell, his company needed a portfolio of brands that had strong brand loyalty [i.e., customer relationships] that could be leveraged to enable the tobacco company to diversify [i.e., financial relationships], especially in the retail food industry [i.e., trade relationships].”2 Philip Morris paid billions for a set of relationships and the expectations that those relationships would enable Philip Morris to conduct business in entirely new ways in the future.