We all know the importance of balance sheet – a statement prepared by the companies to evaluate the company’s financial health and stability.
Just as a health report gives an overall picture of an individual's well-being, a balance sheet serves as a health report for a company's financial standing. A balance sheet reflects the financial position of a company at a given point in time by assessing its assets, liabilities, and equity. Assets represent what the company owns or controls, while liabilities represent what the company owes to others. The difference between assets and liabilities is the equity, which is the company's worth.
As a marketing strategy consultant and coach who advises companies on building a strong brand, I always have some ‘what if’ questions that can open up some creative thinking for my clients.
Two such question came to my mind recently.
Why don’t we have a clear-cut metric to measure a brand's health?
What if there were a balance sheet for brand management? – A statement that can evaluate the intangible assets and liabilities that contribute to a brand's health.
A brand's balance sheet could help identify the brand's strengths and weaknesses and make informed decisions on brand strategy.
A strong brand balance sheet with a positive brand equity and high customer loyalty can indicate a healthy brand that can create more wealth for the company. A weak balance sheet, on the other hand, indicates areas that need improvement to enhance the brand's health.
But the challenge of measuring a brand's health is like trying to catch a butterfly with a fishing net - many aspects that drive a brand's health, such as trust, culture, and innovation, are invisible and difficult to quantify.
Yet, these drivers are the key to a brand's performance, which in turn drives key financial metrics for the organization. So, a brand's health is like the wind that moves the sails of a ship - invisible but powerful and driving the brand towards success.
Through this hypothetical brand balance sheet (refer the image), I encourage you to think of the brand as the key financial driver and start paying attention to the elements of it.
Based on your industry and stage of the business, you could customize the brand balance sheet.
But to give you a general idea, I am sharing a few things here that can come under the assets and liabilities side.
Let’s start with the assets of the brand.
Core Competencies: These are the unique strengths and abilities of the brand that give it a competitive edge in the market, much like a superhero's special powers.
Brand Equity: This refers to the level of awareness and credibility that a brand has built up over time, which creates a reservoir of attention and trust among its audience.
Pricing Power: A strong brand can command higher prices for its products or services because customers are willing to pay for the added value and quality that the brand represents.
Employee & Customer Advocacy: When employees and customers become advocates for the brand, they help spread the word and generate positive buzz, acting as ambassadors for the brand.
Culture: The culture of a company reflects its values, beliefs, and behaviours and shapes the way the brand is perceived by both employees and customers.
Distribution Muscle: A brand with a strong distribution network can reach more customers and expand its market share, much like a powerful arm that can extend the brand's reach.
Strategic Partnerships: By partnering with other companies or organizations, a brand can gain access to new markets, resources, and expertise, giving it a strategic advantage.
Own Customer Data and Insights: I call it the Knowledge Capital. A brand that collects and analyses its own customer data and insights can gain a competitive advantage by understanding its audience better and tailoring its offerings to meet their needs.
Own Media Channels: A brand that owns its own media channels, such as a website, social media accounts, or a branded app, has greater control over its messaging and can more effectively communicate with its audience. This can be called as the Communication Asset.
Social Capital: A brand's social capital refers to the strength of its relationships with other people and organizations, such as influencers, partners, and customers, which can help it achieve its goals and grow its audience.
Here are the things that can come under the liabilities side of the brand balance sheet:
Reputational Risk: A brand's reputation is like a person's Achilles heel; it can be easily damaged and cause significant harm. Reputational risk refers to the potential damage that can be caused to a brand's reputation through negative publicity or other factors.
Brand Dilution: A brand's identity and positioning are essential to its success, and any erosion of these factors can weaken the brand. Brand dilution refers to the loss of identity or positioning that can occur through poor branding, inconsistent messaging, or other factors.
Competitive Pressure: Just as a ship faces headwinds that can slow it down, a brand can face competitive pressures that can hamper its growth. Competitive pressure refers to the challenges that arise from competing brands or market forces.
Customer Service Obligations: Providing excellent customer service is essential for maintaining a healthy brand, but it can also be a burden. Customer service obligations refer to the cost and effort required to provide quality customer support.
Customer & Employee Churn: Brands rely on both customers and employees for success but losing them can create a gravitational pull that drags the brand down. Customer and employee churn refer to the rate at which customers and employees leave the brand.
Supply Chain Risks: A brand's supply chain is only as strong as its weakest link, and any risks or vulnerabilities in the supply chain can harm the brand. Supply chain risks refer to the potential problems that can arise from sourcing, manufacturing, or distributing products. This can put a dent to the brand’s physical availability in the market thereby reduces customer choice.
Negative Customer Experience: A negative customer experience can have a fallout effect, damaging the brand's reputation and reducing customer loyalty. Negative customer experience refers to any situation where a customer has a poor interaction with the brand.
Product Recall: A product recall can sink a brand into a quicksand of negative publicity and financial losses. Product recall refers to any situation where a product needs to be removed from the market due to quality or safety issues.
Discount Trap: Relying too heavily on discounts and promotions can create a trap that undermines the brand's value and profitability. Discount trap refers to the risk of overusing promotions and discounts to drive sales.
Negative Word of Mouth – The Viral Venom: Negative word of mouth can spread like venom, poisoning the brand's reputation, and hurting its growth. Negative word of mouth refers to any situation where customers share negative experiences or opinions about the brand with others.
Think of the brand balance sheet as the hidden hero of your organization's financial story.
Just like the straw that broke the camel's back, relying too much on discounts and promotions can sink your margins.
And if you give customers a bad taste in their mouths, they won't come back for seconds, leaving you with a costly churn.
But fear not, for the brand's health is the goose that lays the golden eggs – your revenue and margins.
If you take care of the goose, the eggs will take care of themselves.
About the Author
Rajesh Srinivasan is a Marketing Strategy Consultant, 2x Author and a Keynote Speaker.