The Service-Profit Chain developed by Heskett, Sasser and Schlesinger (1997) from Harvard Business School establishes relationships between profitability, customer loyalty, and employee satisfaction, loyalty, and productivity. This model suggests that profit and growth are stimulated primarily by customer loyalty, which is a direct result of customer satisfaction. Satisfaction is greatly influenced by the value of service provided to customers. Satisfied, loyal, and productive employees create value. Employee satisfaction, in turn, results primarily from high quality support services and policies that enable employees to deliver results to customers.

If you have high quality support services and polices, and your employee satisfaction surveys show that your employees are happy, are your customers actually experiencing results that match or exceed your brand promise? Is the culture of your employee base consistent with the values of your company? Are different employee groups delivering quite different experiences to your customers, like sales and service appearing to speak a different language? These inconsistencies create disjointed experiences for customers who will be constantly adjusting to your company’s different styles, behaviors, standards of performance, and promises. This makes it very difficult to develop a sense of affinity and loyalty with your company.

While the Service-Profit Chain model provides an essential foundation to assure that your employees are delivering results to customers, a focus simply on employee support services and policies will not result in employees delighting the customer and delivering on your brand promise. You need a defined employee culture, and reward and recognition system that aligns behaviors consistent with the brand promise of your business. This strong link and consistent behaviors will strengthen the bond of loyalty with your customers, lower the cost of support service, and accelerate operating efficiency and sustained profitability.

In financial terms, the value of a brand can be a significant component of the value of the company. The price paid for acquired businesses is frequently substantially higher than the appraised value determined from the tangible assets of the company. According to a study in 1995: "the average market value of all American-based publicly traded companies was 70% greater than their replacement cost (e.g., their tangible net asset value.)"(1)

Assessing the actual brand value of a B2B services company should include the customer facing processes to determine how effectively the various functions and people are aligned to deliver performance consistent with the brand promise of the company. Unrealistic prices can be paid for brand value that may be tied to market awareness and market share, rather than any real capability of the company to perform commensurate with its reputation. Brand value should be discounted by elements that fail to deliver effectively, or where significant inconsistencies exist between the company and its customers’ expectations for the future.

Consider the case of Philip Morris: "In 1989, Philip Morris paid $12.9 billion for Kraft, six times its net asset value. According to Philip Morris CEO Hamish Maxwell, his company needed a portfolio of brands that had strong brand loyalty [i.e., customer relationships] that could be leveraged to enable the tobacco company to diversify [i.e., financial relationships], especially in the retail food industry [i.e., trade relationships]."(2) Philip Morris paid billions for a set of relationships and the expectations that those relationships would enable Philip Morris to conduct business in entirely new ways in the future.

In addition to significantly affecting the purchase price of a company, the value of the brand and brand equity directly affects stock price of the company. A Cap Gemini Ernst & Young report issued in 2000 concluded "brand power can account for 5 to 7 percent of the change in a company's stock price."(3) A study of 220 companies identified that corporate brand image could be quantified with the following components:

Advertising spending 30%
Size of company 23%
Low dividend 10%
Earnings volatility 7%
Stock price growth 8%
Other factors* 22%

*(including marketing components such as events and publicity, industry affiliation,
product categories, message quality, etc.)(4)

Note that 52% of the factors influencing the brand image are those associated with ensuring that your brand message and promise are effectively defined and clearly articulated. This brief analysis shows that effectively developing and executing a comprehensive company-wide brand strategy will contribute significantly to the value of the company. The steps that can be taken to accomplish this are defined and uniquely adaptable to any business. The results will be measured in the improved performance of every function of the company, leading to improved sustained profitable growth and continuing growth in stock equity.


(1,2) Tom Duncan, Driving Brand Value, pg. 4.
(3) "Name Brand Calculus or Imaginary Numbers?" US Banker, Volume 113, Number 6, Page 26, June 2003.
(4) Ad Value, Leslie Butterfield, ed., Butterworth Heinemann, Oxford, 2003, "How advertising impacts on share price," James Gregory, pgs. 17-25.



© OneAccord 2006.