The asset your balance sheet ignores

This week we sit down with Dave Reibstein, the William S. Woodside Professor of Marketing at the Wharton School, whose research puts a number on something most companies only describe with adjectives: brand loyalty. He walks us through why some of that loyalty is built to last, and why some of it can quit with two weeks' notice. 

—Elena

Executives say their brand name earns them a 10% price premium. 

Dave says that's the number executives reach for first when asked what their brand is worth. He calls it only part of the picture. Brand value can also show up as extra volume instead of price, and most brands see some mix of both. 

 

What is your brand loyalty actually worth? 

 

What makes customer loyalty valuable in the first place?

Research from Wharton's Dave Reibstein traces loyalty to two sources, brand recognition and talent. Brand recognition holds up over time. Talent doesn't. Lose a star performer, and the customers loyal to them can walk too. Talent-heavy brands see higher turnover and pay investors a bigger premium for the stock.

 

What's Dave's most controversial opinion about brand value?

Dave wants brand value on the balance sheet. Procter & Gamble buys Vicks, and that brand's value becomes a company asset. Build the same brand in-house, and it never touches the books. Real estate fluctuates too but still counts as an asset.

 

How should marketers balance short-term promotions against long-term brand building?

Depends on where you stand. Promotions deliver a fast, visible bump. Brand building pays off slower and is harder to show in a quarterly report. So if you’re great at acquiring customers but struggle to keep them, Dave says to invest more in the long game. Cutting brand budgets first is easy. It's not smart.

 

What single thing moves marketing results the most, in Dave's experience?

The product. Dave calls good products and services the number one answer, ahead of any advertising tactic. Spend a lot on ads without one, and repeat purchases and word of mouth dry up fast. Consistent product and service is what builds a brand, Dave says, across B2B and B2C alike.

 

Listen in on our discussion.

 

“Inalienable Customer Capital, Corporate Liquidity, and Stock Returns”  

Dave co-authored this Journal of Finance paper, the study behind today's episode. It measures the financial risk of brands that lean on talent instead of pure recognition and shows how investors price that risk into the stock. 

Read the article.

 

Built slow, lost fast 

 “It takes 20 years to build a reputation and five minutes to ruin it.” 

— Warren Buffett 

This newsletter comes from the hosts of The Marketing Architects, a research-first show answering your biggest marketing questions. Find us on Apple Podcasts or wherever you listen to podcasts.