The Financial Impact of a Strong Brand Reputation

According to Communications Consulting Worldwide (CCW), if Wal-Mart were to have the brand reputation of Target, then its stock price would increase 4.9% and its market capitalization would increase by $9.7 billion. CCW also estimates that if drugstore chain CVS had the reputation of its chief rival, Walgreens, then CVS’s stock would increase by 6.9% and would add $3.9 billion to its market cap.

Whoa!

It’s no secret that a strong brand reputation has a halo effect within the consumer marketplace and financial marketplace. What’s new is the ability to more precisely measure a brand’s reputation in order to predict how changes in brand’s reputation will impact the company’s stock price.

In this MUST-READ BusinessWeek article, we learn that CCW has constructed a model which is able to link the positive/negative attributes of a brand’s reputation to the rise/fall of its stock price.

Southwest Airlines is a client of CCW and the brand reputation of Southwest is very strong. However, CCW estimates Southwest could improve its stock price 3.5% resulting in increasing its financial market value by $300 million by tweaking its consumer messaging. To accomplish this, Southwest would need to downplay its low fares messaging and instead, highlight its far-reaching routes and frequent schedules. Southwest has followed CCW’s direction and although airline stocks have fallen 15%+ in 2007, Southwest’s stock is only down 5.0%.

Having a predictive model to determine the stock price impact of marketing messages can only help marketers at Fortune 1000 companies to better design and better sell-in their programs.

If you are interested in learning more about how brand management is reputation management, read THE 18 IMMUTABLE LAWS OF CORPORATE MANAGEMENT by Ronald Alsop. It’s a worthy read from way back. You can also read this excellent summary of Alsop’s book.

To further entice you to read the Business Week article, take a look at this graphic. It is sure to intrigue the marketer in you.

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Comments

[Valeria Maltoni]

John:

This is a brilliant post, thank you. I had noticed that SouthWest tweaked its message when I talked to their marketing folks here in Philadelphia a month or so ago. They had more information on routes and schedules than I had ever seen.

When my company was acquired I wrote a brief on reputation to bottom line using our company as the measurement. It is nice to see that we will be able to do more of that.

[Nat_Nudge]

Hey John. Interesting post.
I think an important thing to remember is that stock valuations are imperfect (they are subject to the same whimsical preferences than anything else). So strategies to maximise stock prices may not necessarily maximise the long term value of the company.
Perhaps the best long term business strategy would be to maximise customer value - eventually the stock market will catch up (marketing you business to the stock market is short-sighted and only useful for IPO's and for CEO's stock options)
cheers

[Lewis Green]

John,

Good post. Thank you for sharing. Like Nat, I find the metric interesting and can imagine CMOs and CFOs of larger companies rushing to use it. But the metric is a tool, not a strategy (as you well know), and the strategies remain providing value and producing great experiences. Too many CMOs and CFOs find those strategies lacking romance.

[johnmoore (from Brand Autopsy)]

I hope this post has spurred you to read the full article from BusinessWeek. There are many nuggets in the article that are worthy of posting about. The point I found most worthy of sharing is that CCW has developed a model that shows a quantifiable relationship between a brand's equity and its financial equity.

With all this, the underlying factor remains that businesses/brands must do all the "basic" stuff of providing a great product, delivering great customer service, living a great company culture, etc. in order to positively impact its reputation/perception/status in the marketplace.

[realestate]

Nice article.
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John Assam