Which Is A Better Investment – Customer Experience Or Brand Management?

gregory yankelovich

Which is a better investmentThe advancement of social media during the last ten years have given rise to the power of social customers. That power has precipitated fundamental shifts to the marketing paradigm that was developed over 3 decades prior. Surprisingly, relatively few companies have 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 have 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, which 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.

For more on customer-focused marketing strategies, see Marketing’s Customer Experience Mandate.