Emotional Currency: The Power of Goodwill
John Stuart, Chairman of Quaker Oats Company, said circa 1900: “If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trademarks, and I would fare better than you”.
Before the concept of marketing or branding as we know it today came about, Stuart made an important and forward-thinking realisation about its importance to a business. In the beginning, a brand differentiated one product from another, so a consumer could associate a set of attributes with a particular name, allowing them to distinguish between available products and form a preference for one company’s product over another. Fast-forward to 2014, and a brand is the only thing a company has left to compete on. Brands are inimitable; a competitor can copy all the elements of your marketing mix – your products and packaging, your pricing and distribution strategy and your promotional approach, but the brand remains sacred.
In recent history, there has been a dramatic shift in the understanding of how business value is created. In Stuart’s time, a business would be valued based upon its manufacturing assets, property and financial assets such as investments and accounts receivable. Today, the value of the intangibles, the brand and the goodwill, comprise part of a company’s balance sheet.
I, like Stuart, believe that the majority of a business’ value is derived from their brand, if they have a strong brand with a compelling story behind it. This is supported by the wider gaps we are seeing between a company’s book value and its stock value. Interbrand measures the top brands in the world, estimating the contribution that branding makes to shareholder value. The McDonald’s brand is estimated to deliver 70% of shareholder value, with the rest being accounted for by the bricks and mortar of the business.
Without the heritage or coverage of the big brands of the world, small businesses need to look for ways to build goodwill on a small scale but at a fast pace, especially for start-ups. One way to do this is to leverage off the goodwill of your suppliers who have created strong brands for themselves. Consider the last supplier decision you made; you would have considered the costs of their products to your business, but did you also take into account the value that could be added to your business by having them as a supplier? For a café, one element of their goodwill is the coffee brand they choose.
At Di Bella Coffee we invest our resources in building a reputable brand that stands for quality of product and coffee education. This has a flow on effect for our wholesale customers as they benefit not only from our focus on developing expertise, but also the goodwill that the Di Bella Coffee brand has created through this approach.