Consumer companies obsess about their brands, constantly modernizing them to keep pace with consumer preferences. On the other hand, business-to-business companies tend to let their brands age to the point of obsolescence. These organizations often attribute their successes and failures to the parts of the business they believe to be more relevant to the customer purchasing decision. As a result, they under-invest in their brand which ultimately costs them.
I have heard many of the misgivings B2B companies have about the role of brand in their business. These can be boiled down into five key myths that most marketers instinctively know are falsehoods, but few have the facts at their fingertips to prove it. So I went looking for the research to help.
As expected, there is a mountain of information available when it comes to large consumer brands like Apple, Google and Coca-Cola. B2B research is harder to find. However, there are organizations like CEB, McKinsey & Company, Harvard Business Review and others that study B2B markets and the role of brand in business performance.
The research I selected to debunk the five myths can apply to nearly any B2B company – small or large, public or private – in any industry to keep it relevant to as many organizations as possible. If you work in B2B markets, you’ll likely nod your head in acknowledgement on a few of these.
Myth #1: B2B is all about the sales relationship
Until recently, the sales relationship was king. Buyers were largely reliant on suppliers for information, specifications and pricing to help them evaluate possible solutions. And the sales person controlled much of the process. The digital age has completely blown up that dynamic.
Today, the business-to-business buyer is going online to investigate solutions, develop a list of requirements, gather specifications, and narrow down their options without any involvement of a sales person. A survey by the CEB Marketing Leadership Council and Google showed that customers are more than halfway (57%) through the sales process before they engage a sales representative. This is regardless of the price point of the product or service.
So what are the buyers doing to get that far down the purchasing cycle on their own? They are learning about your brand online, investigating your brand reputation with third parties, connecting with peers about your brand through social media, and otherwise having a conversation about you – but without you.
This makes it vitally important for a B2B company to have a strong sense of its brand and know how to deliver the right experience through every available customer touchpoint. The prospect of today needs to understand the value of your brand before you even know who they are. Or you might never know who they are.
Myth #2: Brand is not an important factor in selecting a vendor
A second major misconception that I frequently encounter is that brand is a minor consideration in the B2B decision-making process. This could not be further from the truth.
A McKinsey & Company survey showed business buyers consider the brand to be a central element in selecting a supplier, ranking slightly higher than the performance of the sales team. This is largely due to the fact the stakes are often high with B2B purchases, so confidence in the brand is critical and buyers will pay for peace of mind.
“Decision makers are willing to pay a premium for strong brands because they make their lives easier, primarily by aggregating information and reducing risk,” wrote McKinsey. When all of the customer analysis of the solution is done, it is often the strength of the brand that separates a company from its competitors to win the business.
Myth #3: Product attributes are the most important factor in the purchasing decision
To be fair, the McKinsey survey mentioned above shows price and product are the top two factors in the decision-making process – ranked just ahead of brand. But what happens when the competitive offerings are not that different in the eyes of the buyer? It happens more than you think.
A CEB survey of B2B buyers reveals only 14% of customers perceive enough of a difference in vendor offerings and value to be willing to pay for it. This means the other 86% of buyers view the offerings as commodities – not good news for margins and sales win ratios.
This is where the brand plays a huge role. The same survey shows the emotional and personal values of the buyer have significantly more impact (42.6%) on the purchasing decision than product values (21.4%). Decision-makers are buying what a company stands for more than they are buying the products or services it sells. People are buying the brand.
Myth #4: Building a brand is an expense that decreases profitability
When brand building is viewed only as marketing spend, this may be the case because the brand is being undervalued. However, when brand is used as a corporate strategy to drive the entire business, the marketing budget is only a small part of a big picture – and the results speak for themselves.
Each year, McKinsey & Company examines the correlation of brand strength and financial performance in business-to-business companies – and it continues to find the difference to be statistically significant. For example, companies with brands that are perceived as strong generate EBIT margins that are 20 percent higher than brands that were seen as weak.
The superior margins can be attributed to the impact a strong brand has on marketing performance, leads generation, close rates, average selling prices, lifetime customer value, customer satisfaction and a host of other metrics. Improvements in all of these areas go straight to the bottom line, which in turn, helps build a stronger brand.
Myth #5: Brand has nothing to do with the value of the company
Not only does a strong brand improve profit margins, but it enhances the overall value of the company. The easiest place to see how this works is with public companies because the data is readily accessible, but the same concept applies to private companies.
A Harvard Business Review study of 450 public B2B companies over a 16-year period assessed the relationship between brand perception and performance measures like revenue, profits and cash flow that are linked to stock performance. HBR determined corporate brand equity is responsible for an average of 7 percent of market capitalization in the 47 industries it follows. The leaders in each category were closer to 20 percent.
The same can be true in private entities. When pump manufacturer Gardner Denver was acquired by KKR, company officials determined that its brand reputation was a key contributor to the fact that 43 percent of its value lie in goodwill and other intangible assets. By comparison, the goodwill of Proctor & Gamble is approximately 40 percent of total company value. No doubt this helped pump up the price KKR was willing to pay for Gardner Denver. And this is a “boring” B2B company!
Know the role of brand in your business
The research tearing down these five myths is solid, but as with anything there are exceptions. In the early stages of a company, the sales relationship and product attributes may very well be the primary drivers of the business. But, as the company grows, the brand becomes increasingly important to the sustainability of the business.
So the bottom line is every B2B company needs to understand the role brand plays in its business at each stage and plan for how it will evolve in the years to come. It’s a matter of becoming a market leader or one of many followers.