October 2020

The World of B2B

The ongoing disruption caused by the pandemic is forcing many brands into survival mode, where any marketing spend is being concentrated into short-term activation tactics to try and secure sales in a cautious buyer’s market.  

But when growing sales just aren’t possible, what are other ways that a B2B enterprise can create value in a downturn? The answer can often be discovered through the business properly evaluating the sources of its brand’s value. A brand is more than a symbol – it can be a cipher for the financial and operational health of an organisation – and CFOs and investors are increasingly seeing it that way too.   

We had a conversation with Joanna Seddon, President, Global Brand Consulting for Ogilvy Consulting and author of The Brand in the Boardroom about how B2B organisations can best understand their brand’s value. 

Q: Is a brand contribution model for a B2B organisation broadly the same as for a B2C organisation?  

The sources of value for B2B tend to be about the product and the customer experience. So, it’s a mix of the tangible aspects of the brand and the intangible aspects.  

“For B2Bs the brand needs to create trust in the buyer”

To see how a B2B brand contributes to the business, you look at every touchpoint – where the company touches the stakeholder – and you identify what they care about and what drives their decision. For B2B it’s exactly the same concept as a B2C brand contribution model. It just tends to be more experience heavy. Because things like customer service, you know, technical expertise and reputation can be more important in B2B. Which is counterintuitive for many people.  

For B2Bs the brand needs to create trust in the buyer – it needs to act as a signal from the vendor organisation that the relationship is going to work long term. Trust and brand are more important very often in B2B because the purchases are bigger. There is more risk involved. If the product goes wrong – it’s not like if you don’t like your shampoo and you can go and buy a different one the next day with little cost.  

That’s one way to understand the B2B brand’s impact on the customer’s purchasing decision – how a brand creates value on the demand side.  

Q: What about the impact of brand strength on the supply side? What value does a strong brand create in a business’s operation? 

If you have a good brand it can help you attract better suppliers more easily, get better terms with them and impact those relationships as well.  

Brand impacts in all directions. It impacts suppliers. It impacts your immediate customers and it impacts on your customers’ customers and your workforce as well as your future employees.  

“Brand impacts in all directions”

And particularly, we’ve done a lot of work recently in Silicon Valley in B2B technology businesses. Companies are fighting over the top engineers in Silicon Valley and they command very high salaries.  

It is one of the most important things – even almost more important than the brand’s reputation with customers – the reputation that the brand has among potential employees. If you want the top engineers, whether it’s software or electrical or mechanical, a strong brand is critical. 

 

Q: Often the idea of an ‘employer brand’ gets separated from broader conversations about enterprise brand value. Do you think that there are issues with organisations understanding how their brand works in these multiple dimensions in the B2B space?  

Well, first of all generally, it’s why I love numbers. You don’t need to be brand-literate if you can explain the value of your brand in numbers.  

I’d say probably 60 percent of the work we do in branding and consulting is B2B. Which may surprise you, because people often think it is consumer product companies that talk branding mostly.  

A lot of the work I’ve been doing over the last two years has been connected with the Dow-Du Pont merger. Two companies merged, pooled all their assets and then created three new companies, each of which was IPO-ed last year. And that process needed support from a brand advisory point of view.  

We would never have gotten anywhere – in terms of making good decisions about the brand strategy – without the ability to talk to senior management about numbers.  

“Financial metrics create a shared language across the B2B business”

Numbers – financial metrics – create a shared language across the B2B business. Marketeers can see the answer about brand influence and brand value maybe in other forms of data, like customer research, marcoms analytics or whatever. But convincing other enterprise teams about the value of brand doesn’t work until you translate it down to commercial numbers. Because numbers are what the rest of the organisation understands.  

That commercial analysis of the brand is what provides the data that then is used to change decisions or to help make the right decisions for the business – like investing in building brand strength. 

 

Q: Would you say that sometimes today’s marketing teams might not be as close to those commercial numbers as they need to be? 

Well, that is one of the reasons why there’s been a spike in turnover in CMOs. It’s because the nature of the people leading marketing organisations has needed to change – the role has changed. 

How can I explain the way that we should think about the change in the marketing profession… let’s start by talking about businesses’ supply chains. The supply chain is what consultants – normal business consultants and management consultants – focus on. They have been focusing on the supply chain now for years. Supply chain efficiency optimisation is basically all now played-out and all the available economies have been made in most good, well-run companies.  

And the emphasis is now shifting to growth – which is the demand chain. When there are no further possible optimisations to the supply chain there is a renewed focus on growth. And with that comes a spotlight on the marketing leaders who often may not have the skills and background to be the people responsible for growth.  

“When there are no further possible optimisations to the supply chain there is a renewed focus on growth.”

And that’s why you’ve seen a lot of companies firing their CMO and replacing them with a whole host of other discipline leads. It’s a mess of C-suite titles such as Chief Growth Officer, Chief Customer Officer, Chief Communications officer, Chief Digital Officer, they go on and on. And really what that reflects is that two things started to happen at once and needed to happen. 

One is senior management’s pressure to grow and they’re starting to realise that they need help in growing. They’re looking at their marketing people and they don’t see them as the people who have the qualifications to drive growth – because they may just have a marcomms background. They may know nothing about sales. They may know nothing about the customer journey. They may know nothing about digital.  

The other is the fact that the diet of marketing activity is changing. You know, with AI, marketing automation – it’s changing the marketing function, but it’s also changing the skill sets needed. That’s why a lot of companies are struggling with their marketing team structure. 

 

Q: Do you think there’s going to be a new wave of B2B organisations who start to get serious about brand in the coming months? 

I think it’s already happening. What triggers a B2B business’s reappraisal of the role and value of their brand is if there’s a big problem the organisation needs to solve, and if they are able to prove what the brand does by linking its outcomes to money. As I said earlier, it’s about putting brand value into terms the rest of the organisation understands. You can get people to realise the brand matters and that it can make it a huge difference to share price.  

“What triggers a B2B business’s appraisal of the role and value of their brand, is if there’s a big problem the organisation needs to solve.”

CEOs, boards, CFOs, especially in B2B businesses, have long been sceptical about brands – and many of them still are. However, the people who are not sceptical about brands anymore are financial analysts and the investor community. 

They woke up – increasingly they are starting to pay more and more attention to reputation and brand. They recognise how investing in brand and marketing and thinking about brands contributes a lot to share price – and that brand building might be a way to get a share price up. Well, then that starts to change the conversation.  

So, the changing attitudes of the financial community helps. And that’s driven by other numbers.  

If you look at the financial value of the S&P 500, for example, and you go back to the 1950s, it was all about tangible assets – plant, property and equipment. And that was 80 percent of the value of most companies. But nowadays, we’ve shifted to the information age – the pendulum has swung gradually over the years the other way, until today, if you look at the value of the S&P, approximately 70-80 percent of their value measured in things like market capitalisation is intangibles.  

There are two big buckets of intangibles that are measurable. One is intellectual property, which is the biggest, and the other one is reputation, which is brand. 

Things like ESG have helped because that’s reputation as well. The pressure to cultivate positive public opinion, the pressure of the companies to appear to be sustainable, also link directly back to reputation and brand. That’s another growing factor driving B2B businesses to think more strategically about brand as part of their investor proposition. 

There’s a study that we looked at quite recently, which shows that today 70 percent of millennials say they’d rather buy products from a company that had a good sustainability record and have a strong purpose. But if you go down to the next generation, the Gen Zers is and then Gen Alphas just being born, it’s going to be sine qua non. If you don’t have the good reputation for sustainability, they won’t buy from you. 

 

Q: If there’s been an erosion of understanding in a B2B organisation about what their brand value is, how the brand works – and its brand leader now wants to course-correct – how can they get buy-in to a project like that?  

They key thing is to have a question that needs answering, and someone that’s motivated to answer it. Often, it’s things like “why should I be bothering spending on marketing?” or “does our brand matter at all?”  

There was a project that we did a few years ago for a major bank, which has a consumer banking aspect but also a big investment banking arm. For that brand valuation project our sponsors were a combination of the finance department, the tax team – because there can be tax advantages to valuing your brand, too – and the CMO.  

At the end of the project we analysed the implications of the brand valuation, and the CMO realised that most of the corrective action areas were nothing to do with marcoms.  A lot of the outcomes were operational changes. As a result of understanding the sources and influences of brand value they completely overhauled their customer service system. They retrained everybody in all the branches, changed the name of their investment bank – all sorts of things happened.  

Sometimes buy-in to a brand value analysis happens in stages. We just finished a project for a major B2B software company in Silicon Valley. And that’s run by engineers who really do not care about brand. They made some acquisitions and they didn’t know what to do about the names – and that was what started it. Our first piece or work was linking the brand to financials to see whether taking the name of the bigger acquisition they’d made would lose them business or not – using brand valuation.  

We answered that question and then they said, “well, we think we’re spending less on marketing than some of our competitors. If we spent on marketing to build our brand, what difference it would make to the business?” 

So, they asked us to value the brand as part of that, which we did. And the brand valuation did indeed show that they needed to invest more in marketing to make more new customers more willing to try them. So, it was a growth objective – they needed to use their brand to drive growth.  

“Investing in brand is essential if you need to drive growth.”

But where they got really interested – beyond learning that investing in brand is essential if you need to drive growth – was where it also showed that in order to benefit from the brand fully in driving sales there were other things they needed to address that were nothing to do with straightforward marketing investment. They were to do with other types of investment.

Now, this company sees its brand as a tool to drive the growth of the business and also as a tool to make changes right across every function of the business from operations to recruiting to the profiles of the top executives in the company. 

 

Q: Let’s talk about the importance of ‘talking CFO’ when it comes to brand value. Take some traditional outcomes that we’d like to create through marketing, like brand preference, or employee retention. How can B2B marketing leaders translate these metrics into metrics that would make a CFO pay attention? 

Let’s take an example. A major B2B global logistics and distribution company has tens of thousands of employees. So, employees really matter to its business – it’s people that deliver its service. 

There, when we linked the brand to numbers, the person who became the biggest sponsor of the brand valuation project was HR. We identified all the components that drove business growth. Part of that was analysing the contribution of employees, and by what levers do employees really make a difference. We were able to put numbers to that. So that enabled us to figure out, if you improved your hiring, your training, how would that drive growth?  

If you have a great brand, so if you’re Goldman Sachs or Google, for example, you could hire more easily from the top business schools, pay them less. And they stay longer. That’s brand. People want to be able to talk about the place they work and be proud of it. 

Better employee engagement and retention metrics, which are both heavily influenced by employee brand perception, can also make a huge difference to the efficient use of working capital – and now we’re really talking the CFO’s language. 

 

Q: For an organization that might not be able to pursue growth right now – and say, their investors wanted improvement on a metric like free cash flow, or cost of borrowing instead – what might be some of the brand levers that they could pull there?  

Well, a strong brand reduces the cost of selling, and speeds up the buying process. And of course, it can also increase margins. So, if you’ve got a great brand it drives both a price premium and a margin premium. If you’ve got a good brand, you can choose – it becomes a strategic decision. You can choose to position your brand to drive volume of sales, or you can position your brand to drive price premium and margin, and that can make a huge difference to the cash flowing through the business. 

“A strong brand reduces the cost of selling, and speeds up the buying process.”

As part of another brand valuation project, we talked to senior executives across the organisation to make sure we were measuring and including all the right potential drivers through which brand impacted the business – the levers of financial value creation. And one of the people we had to interview was the company treasurer. Now, we weren’t terribly much looking forward to talking to the head of treasury at time because we didn’t expect them to be very interested in the topic.  

Well, we were completely wrong. The treasury guys came in and they said, “we’re so happy to talk to you because the brand is so important to us in our work.” They had been looking at bond prices and they had figured out that they were getting a couple of extra basis points that the business fundamentals didn’t really justify. A strong brand improved their ability to borrow – and they measured it.