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Tip: Don't Count on Branding to Drive Profits

Tip: Don't Count on Branding to Drive Profits

April 26, 2018

Many B2B corporations, and distributors in particular, get into trouble when they hire the wrong branding agency, according to MDM President & COO Ian Heller in When Good Companies Do Bad Branding.

One of the biggest misconceptions around hiring a branding agency is the expectation that rebranding will result in soaring profits.

Branding agencies they will sometimes show a line chart highlighting the impressive stock performance of a handful of public companies. Closely correlated will be a line showing those companies’ aggregate investments in branding. The lesson? Spending on branding will drive up your stock price (or whatever valuation is important to you).

"I’ve yet to see compelling data demonstrating causality between branding and stock price," said Heller. "Although the charts the branding agencies show you may reflect the data accurately – I’m sure there are companies whose branding investments and stock prices go up together – that’s not persuasive."

According to Heller, there are no doubt other companies that spent more on branding while their stock prices declined.

"It’s most likely that the brand investments and stock prices are dependent variables driven by something else entirely. For example, a company may be enjoying strong sales growth from new products and services that drove lots of cash – and they decide to spend some of it on branding."

Learn more about branding agencies in When Good Companies Do Bad Branding.

© 2019 Gale Media, Inc.

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