The concept of creating value is one of the most misunderstood ideals in business, but it's also one of the most essential.
Why? Because of all the ways that "value" can affect your company. After all, it's due to a brand's perceived value that individuals want to do business with you, it's what separates your brand from the countless others out there.
So What is Value and How Do We Measure It?
When most people think of a company's value, they're actually referencing economic value. This means a measure of a financial performance that's calculated by deducting the cost of capital from its operating profit.
However, a business can also have what's known as 'intangible value' and assets that are not physical in nature. Things like intellectual property, goodwill and brand recognition all play a part in this.
How do the most successful companies identify value and how do they create it when others fail?
While these intangibles may be hard to measure in terms of actual dollars, we can calculate their value best via consumer feedback and how the company's bottom line compare to others within the industry.
One of the best examples that I've heard of this was a speech made several years ago by Aswath Damodaran, who's a professor of Finance at NYU's Stern School of Business. He was speaking at the L2 Innovation Forum and gave a great example of a how soda brand's name can be considered a key intangible value.
In terms of soft drinks, there are thousands of different types of colas, and yet when you look at market share, there's a huge different between Coca Cola and RC cola. The basic formula for both sodas is virtually the same, and yet, Coke was recently estimated to have assets totaling $90.9 billion compared to Cott Beverages (the parent company of RC) whose assets are estimated to be worth $1.6 billion.
To some degree, you can attribute the differences to higher marketing budgets and smarter overall business practices, but Damodaran discussed how people perceive the two brands, with Coke consistently ranking higher in term of customer-added value. So, given the choice of drinking both an RC and a Coke, more consumers reach for the recognized brand name because of the personal association.
How Value is Created at Different Levels
Although there are many ways that intangible values can be created, there are four main ideals that every good brand manager must consider:
- Creating value through perceived credibility - Does your business keeps it word when it comes to promises made to both consumers and board members? If so, this can go a long way towards maintaining a healthy brand value.
- Creating value through vision - This refers to how your company has a demonstrated path forward in terms of company growth. Communicating growth instills confidence as people like to see how their favorite brand plans for the future of both the business and the communities that they serve.
- Creating value through investment of capital - The best brands know that putting your money where your strategy is one of the best ways to build customer goodwill.
- Creating value through people - Remember your employees are your best assets - investing in good people makes a big difference in your brand valuation.
Creating Intangible Value: Starbucks and Howard Schultz
One prominent example of a company creating extraordinary intangible value is Starbucks. Founded in 1971, Starbucks has grown to one of the world's largest chain of coffeehouses, with a presence in 67 countries and revenues topping $16.45 billion in 2014.
Initially, Starbucks managed to differentiate from their competitors by creating a unique atmosphere that they called a "third place" for customers, with home and the workplace being the first two. The idea behind this was that customers could indulge in a cup of coffee while relaxing in an upscale environment.
However, as some other chains have sought to copy Starbucks business model, the company's made several changes designed to strengthen the brand and deepen customer loyalty under the guidance of their CEO Howard Schultz. These moves include the creation of a robust rewards program, developing an innovative mobile app that allows customers to place orders, as well as pay for them, on the go and a new benefit for employees that funds their education through a partnership with Arizona State University.
As a result of these changes, Starbucks has been able to maintain their place as a leader in their industry, even during the most recent economic downturn, where trips to such places could be viewed as an affordable luxury. For his efforts, Schultz has been lauded as one of the most groundbreaking CEOs in business.
This post originally appeared on Bryan Kramer's blog