Which is a better investment – Customer Experience or Brand Management?

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Which is a better investment
The advancement of social media during the last ten years gave rise to the power of social customers. That power precipitated fundamental shifts to the marketing paradigm which was developed over 3 decades prior. Surprisingly, only relatively few companies noted the avalanche of research into the financial implications of these shifts and made appropriate changes, while most still debate the impact of customer experience on enterprise valuations.

I documented before the multiple correlations between successful customer experience investments and creation of wealth. Now, new research published in the Harvard Business Review examines trends of brand and customer value components as percentages of overall enterprise valuation. The authors analyzed over 6,000 M&A (Mergers and Acquisitions) activities worldwide between 2003 and 2013 to reveal the dollar valuations of all assets at the time of the acquisitions. During this period, that coincides with the explosion of social customers influence, the market valuation of “brand” assets declined almost 50% while the valuation of “customer” base increased 100%.

What is better investment

The public transparency of customer experience a company delivers became very common during this period. Consumers and business buyers prefer to use such information to make purchase decisions and that erodes the power of brands.

In the past a brand was recognized by a company as the more valuable asset because they served as a proxy for the quality of products or services sold under that brand. In the vast “ocean” of uncertainties of choice (“Life is like a box of chocolates. You never know what you get”), a brand served as a life raft. The loyalty to a brand reduced uncertainties of the market place.

Today, consumers have unlimited access to better tools for reducing shopping uncertainties – the past experiences of socially connected customers.

Companies that understand this shift in marketing paradigm choose to reduce the investment in trademarks and trade names, banners and domains to focus on delivery of superior customer experience instead.

Delivery of Superior Customer Experience (SCE) means delivery of experience that is rated consistently higher than the experience delivered by your direct competitors from the customers point of view (“outside in” perspective). The only meaningful and authentic rating is done by the customers publically and “in the wild”, i.e. not solicited or influenced by a company or its agents.

Such a shift in marketing investment strategy results in a reduction of customers churn, an increase in margin and a lower cost of customer acquisition, i.e. an increase of CUSTOMER VALUE component of the overall enterprise valuation.

7 COMMENTS

  1. Interesting point Michael. What happens if 3 out of products sold under the brand X have positive social reputation, while the rest have a negative one? While companies strive to deliver consistent CX across their product lines, not too many are very successful. I think consumers are more focused on customer experience delivered by specific products they are interested in, not the brands as a whole.

  2. Ram, since this post compares value of brand management to value of LTV of the customers as a percentage of an enterprise valuation, I use the definitions from Investopedia.

    “Effective brand management enables the price of products to go up and builds loyal customers through positive brand associations and images or a strong awareness of the brand. Developing a strategic plan to maintain brand equity or gain brand value requires a comprehensive understanding of the brand, its target market and the company’s overall vision.”

    From that perspective, I think that superior customer experience, delivered consistently over the product lines, is more likely to lead to increase in brand equity. Not the other way around.

  3. Michael seems to be saying that brand and experience are one and the same.

    Gregory, you say that CX leads to brand equity. What else — besides CX — leads to brand equity?

    I guess what I’m asking is: What is brand management? The definition is pretty general and doesn’t say what activities are included.

  4. This is the best specific list of activities I could find:

    “brand managers serve as the point-person for developing, implementing and executing marketing initiatives and activities for their particular brand. These initiatives and activities include campaigns (print, web, social media, broadcast, etc.), events, corporate responsibility programs and sponsorships.”

    Most brand managers, I had an opportunity to observe, are focused on inside-out broadcasting of their brand’s “messages”. The CEM (CX Management) practitioners are focused, or suppose to focus, on aligning their company processes based on outside-in perspective of how their customers experience doing business with the company.

    “Brand is what your customers say about you, when you are not in the room.” I think the same could be said about a reputation. In social customer’ markets, screaming about your virtues does not improve your reputation – “what you do speak so loud, I can’t hear what you say”.

  5. Right, that’s what I thought too.

    But recent discussions on this forum find that CX professionals include any form of communication as part of ‘managing’ the customer experience. Viewing an ad is just another experience.

    By that logic, then, brand management (if viewed as broadcasting of marketing/positioning messages) is now part of CXM, no?

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