Sunday, March 28, 2021

McKinsey Touts the Value of Industrial Brands

Earlier this year, McKinsey & Company published an article - "The rising value of industrial brands" - that provides important evidence regarding the value of strong brands for industrial companies. This article describes the results of an analysis of more than 5,300 brands of about 900 companies.

The McKinsey researchers examined brands in ten major industrial sectors, specifically:

  • Automotive and ancillaries
  • Aviation, aerospace, and defense
  • Electrical components and equipment
  • Electronic components and equipment
  • Home and building products and technology
  • Industrial diversified
  • Industrial machinery
  • Industrial materials
  • Industrial services
  • Industrial trading and distribution
To enable accurate comparisons, the researchers grouped similar brands (in terms of products offered and end-market focus) in more than a thousand "microvertical" segments.
The Value of Brand Visibility
The McKinsey analysis produced several interesting data points about the market structure of the industrial sector, but the findings relating to brand visibility are most relevant for B2B marketers.
To evaluate brand visibility, the researchers tallied the mentions earned by each brand in media outlets, including the industry publications that potential customers use to educate themselves about products and services. The researchers also tracked the volume of searches for each brand on major online search engines.
The analysis found that brand visibility is highly concentrated. On average the top 5% of industrial brands capture 95% of the total share of voice. And in each of the ten major industrial sectors, the top three companies capture about 60% (on average) of the share of voice in relevant publications.
The analysis also revealed that brand visibility tends to decline over time. From 2015 through 2019, about 60% of the brands studied became less visible. However, 10% of the brands in the study grew their visibility by 50% or more over the same period.
McKinsey's researchers also found that brand visibility (specifically, brand visibility growth) was strongly correlated with higher levels of financial performance. From 2015 through 2019, companies in the top quartile of brand visibility growth produced an average return on invested capital (ROIC) that was 33% higher than companies in the bottom quartile.
In addition, companies in the top quartile of brand visibility growth saw their ROIC increase by an average of one percentage point from 2015 through 2019, while companies in the bottom quartile saw their ROIC decline by two percentage points over the same period.
Why Strong Brands Improve Performance
Marketing experts widely agree that a strong brand produces several important benefits. Numerous research studies have shown that a strong brand will improve the performance of sales activation and demand generation marketing programs, which ultimately results in lower customer acquisition costs. There is also persuasive evidence that a strong brand can reduce the price sensitivity of some prospective buyers and make them more willing to pay a price premium, which can improve gross profit margins.
The McKinsey article enumerates even more advantages of a strong brand:  "Powerful brands also make customers more loyal, more willing to tolerate small missteps, and more likely to promote products and services to colleagues, friends, and family."
A strong brand produces these benefits primarily by inspiring confidence. In essence a strong brand provides reassurance to potential buyers and existing customers that they are making/have made a good buying decision.
The McKinsey article argues that such confidence and reassurance are just as important to business buyers as they are to consumers. The article states:
"Across industries, many senior procurement executives tell us that they rely on just a handful of brands for critical services, equipment, spare parts, and so on. They believe these brands offer high quality and reliability to help users avoid downtime, delays, and accidents . . ."
Some marketers have tended to assume that brand visibility, brand salience, and brand positioning are less important for B2B companies than for B2C companies. The McKinsey article should cause marketers to rethink these assumptions.

Image courtesy of David Fulmer via Flickr (CC).

Sunday, March 21, 2021

Research Explores the Value of B2B Thought Leadership

Image Source:  Grist

Grist, a B2B thought leadership and content marketing agency based in London, recently published the results of its Value of Thought Leadership Survey 2020 (the "2020 Survey"). The 2020 Survey was conducted in October of last year and produced responses from 525 senior executives at global organizations operating in ten industry sectors. Respondents were located in eleven countries.

The 2020 Survey is the third installment of Grist's research regarding B2B thought leadership. The firm also conducted surveys in 2018 (the "2018 Survey") and 2016 (the "2016 Survey"). This type of research can be particularly useful because it allows us to see how survey responses have or haven't changed over an extended period of time.

The Grist research echoes the findings of many other studies regarding the importance of thought leadership in the B2B marketing mix. In the 2020 Survey, 91% of the respondents said thought leadership is either critical (40%) or important (51%) to their decision making. The comparable percentage in the 2018 Survey was even higher - 99%.

The 2020 Survey also revealed that many senior executives had increased their consumption of thought leadership content since the beginning of the COVID-19 pandemic. Nearly half (45%) of the respondents reported consuming a little more (26%) or a lot more (19%) thought leadership content. Twenty-eight percent of the respondents reported consuming the same amount.

Reasons for Consuming Thought Leadership Content

In all three surveys, Grist asked participants why they consume thought leadership content. The following table shows the three reasons most frequently cited by respondents in each of the three surveys.

As the table shows, the most popular reasons for consuming thought leadership have been relatively consistent in all three surveys. One notable development is that thought leadership content is now playing a larger role in the process of vetting potential vendors. In the 2020 Survey, 60% of the respondents said they use thought leadership to evaluate the expertise of potential suppliers. That was up from only 36% in the 2016 Survey.

Other research has also shown that the quality of thought leadership has a major impact on supplier selection. For example, in the 2020 B2B Thought Leadership Impact Study by Edelman Business Marketing and LinkedIn, 48% of the survey respondents said thought leadership content had led them to award business to a company, and 25% said poor thought leadership content had directly led them not to do business with a company. 

Qualities of Valuable Thought Leadership

In all three surveys, Grist also asked participants what qualities make thought leadership content valuable and useful. The following table shows the qualities most frequently selected by respondents in each of the three surveys.

As this table reveals, the qualities that senior executives look for in thought leadership content have also been relatively consistent since 2016. Fresh thinking was a top three selection in all three surveys, and forward-thinking was a top three choice in the 2020 Survey and the 2016 Survey. In addition, the quality called evidence-led in the 2016 Survey was defined as "containing robust data." So robust data was a highly-rated quality in two of the three surveys.

One type of thought leadership content that significantly increased in importance between 2018 and 2020 is content that is action-oriented. In the 2020 Survey, 32% of the respondents said that being action-oriented ("helping make more informed decisions") is a valuable quality of thought leadership content. That was up from only 18% in the 2018 Survey.

The "Lifespan" of Thought Leadership

In the 2020 Survey, Grist asked senior executives what management time frame they were primarily concerned about. Twenty-nine percent of the respondents said the "next 3 months," and almost half (49%) said the "next 3-12 months." These responses should not be surprising.

When the survey was fielded in October of last year, the COVID-19 pandemic was still foremost in the minds of most business leaders. New cases were rising in many countries, and it wasn't clear when safe and effective vaccines would become available. Under these circumstances, it's not surprising that senior executives were focused primarily on the immediate and near-term future.

The Grist report states that thought leadership content has traditionally focused on time horizons of "3, 5, 10 or even 20 years into the future," and that marketers are rethinking "how long it takes to produce thought leadership and how long it remains relevant."

My view is that the "time frame" issue will have less impact on thought leadership than the authors of the Grist report seem to believe. In my experience, most good thought leadership content addresses major issues that are likely to have a significant impact over an intermediate time frame, say the next 1-2  years. In addition, as the COVID-19 pandemic subsides and business conditions begin to normalize, senior business leaders are likely to expand their management time horizons and return to somewhat longer-term thinking.

Sunday, March 14, 2021

B2B Highlights From "The CMO Survey"

The findings of the February 2021 edition of The CMO Survey were published last month. The CMO Survey is led by Dr. Christine Moorman and sponsored by Duke University's Fuqua School of Business, the American Marketing Association, and Deloitte.

The latest survey results are based on responses from 356 senior marketing leaders at companies based in the United States. Almost two-thirds (64.6%) of the respondents were affiliated with B2B companies, and 94.5% were VP level or above. The survey was fielded January 6-26, 2021.

The CMO Survey is conducted semi-annually, and it's a valuable resource for capturing the views of U.S. marketing leaders regarding the overall economic environment and major marketing trends. In addition to top-level results, survey findings are reported by four economic sectors - B2B product companies, B2B services companies, B2C product companies, and B2C services companies. Unless otherwise indicated, the results described in this post are based on the responses of B2B marketers.

B2B Marketers Are Optimistic About the Economy

The survey asked participants to rate their optimism about the overall U.S. economy using a 100-point scale, with 0 being the least optimistic and 100 being most optimistic. The following table shows how B2B survey respondents rated their level of optimism in the February 2021 survey and the two immediately preceding surveys. As this table shows, B2B marketers' current level of optimism surpasses the February 2020 (pre-pandemic) level.

The survey also asked participants whether they were more or less optimistic compared to the fourth quarter of 2020. More than half of the B2B respondents - 51.3% of those from B2B product companies and 58.8% of those from B2B services companies - said they were more optimistic.

Marketing Became More Important in 2020

A substantial majority of B2B marketers believe the importance of their marketing function increased in 2020. Sixty-nine percent of the survey respondents from B2B product companies, and 76.6% of those from B2B services companies said that marketing became more important at their company last year.

It should not be surprising that the marketing function increased in importance in 2020. In a survey of B2B decision makers conducted last April by McKinsey & Company, 96% of the respondents reported that the COVID-19 pandemic had already required them to make changes in their go-to-market model. Many of these changes involved a shift from face-to-face interactions with existing and potential customers to content-based interactions, many of which were/are digitally enabled. Hence the growing importance of the marketing function.

Pandemic-Driven Strategies Will Be Durable

The COVID-19 pandemic caused dramatic changes in how both consumers and business buyers shop for, learn about, and buy products and services. As a result, many marketers made major changes in how they reached and engaged with customers. The big challenge for marketers now is to determine which of the new customer behaviors will persist after the pandemic has subsided, and therefore, which of the new marketing strategies will continue to be important.

An overwhelming majority of B2B respondents in The CMO Survey believe the marketing strategies implemented because of the pandemic will remain important after the pandemic has ended. The survey asked participants to what degree they thought the marketing strategies they used during the pandemic would be important in the long term. Respondents rated the continuing importance on a 7-point scale, and more than eight out of ten B2B respondents rated the long-term importance at 5 or above.

Other Findings

The CMO Survey addressed several other important issues, and I recommend that you review the full report. Here are a few of the other important findings.

  • Respondents from B2B product companies reported that their marketing spending declined 6.5% in the twelve months preceding the survey, but they expected spending to increase 11.3% in the twelve months following the survey.
  • Respondents from B2B services companies reported a 1.6% increase in marketing spending over the preceding twelve months, and they expected a 10.3% increase over the following twelve months.
  • B2B companies weathered the pandemic reasonably well. On average, B2B product companies grew revenues by 1.6% over the twelve months preceding the survey, while B2B services companies sustained an average revenue loss of only 1.0%.
  • A large majority of B2B survey respondents (77%) do not believe it is appropriate for their brand to take a stance on politically-charged issues. The picture is quite different for B2C marketers, where 33% of respondents from B2C product companies, and 42% of those from B2C services companies said it is appropriate for their brand to take a stance on such issues.
Top Image Source:  The CMO Survey.

Sunday, March 7, 2021

Why Marketers Should Be Preparing for Robust Economic Growth

Back in January, I wrote that B2B marketers should use a quarterly approach to planning in 2021 so that they are able to adapt to changing business conditions. Specifically, I recommended that marketers develop a revenue forecast for each quarter of the year and finalize the forecast in the month before the beginning of each quarter. Then, marketers can lock down their marketing plans for the coming quarter based on the final revenue forecast.

Marketers using a quarterly approach to planning in 2021 should be finalizing their revenue forecast for the second quarter within the next few days. The purpose of this post is to take an updated look at the prospects for the U.S. economy for the rest of this year. The good news is, the outlook for the economy has improved considerably over the past several weeks, and marketers need to be ready to take full advantage of robust economic growth over the balance of 2021.

Pandemic Progress = Economic Optimism

In 2020, economic and business conditions were tightly linked to the state of the COVID-19 pandemic and the public health measures implemented to mitigate the spread of the virus. That linkage will continue this year, but with very different results.

The state of the pandemic has improved dramatically over the past several weeks.

  • The number of daily cases, total hospitalizations, and daily deaths have all fallen substantially since their peak in early January. As of March 5th, daily reported cases were down 78%, hospitalizations were down 68%, and daily reported deaths were down 44%. (Data Source:  The New York Times)
  • The rollout of vaccines is progressing well. As of March 5th, about 55.5 million people had received at least one vaccine dose, and providers were administering vaccines at an average rate of about two million per day. (Data Source:  CDC)
  • On February 27th, the U.S. Food and Drug Administration granted emergency approval to the Johnson & Johnson vaccine, and the company is committed to delivering 20 million doses this month and a total of 100 million doses by the end of June. The Biden administration is now projecting that the U.S. will have enough vaccine doses for every American adult by the end of May.
There are still concerns about the virus "variants" that have already been identified and about the possibility of additional mutations appearing in the coming months. So far, however, it appears that the three vaccines approved for use in the U.S. will be effective against the known virus variants.
Because of these developments, there is now a widespread belief that the pandemic will be brought under control in the near future, and this is driving expectations for an accelerated economic rebound. As a result, many economists have recently raised their forecasts for the performance of the U.S. economy in 2021. Here are two examples.
The Conference Board Forecast
The Conference Board (a non-partisan economic and policy think tank) publishes a monthly forecast for the U.S. economy. The following chart compares the forecasts for real GDP growth in 2021 made by The Conference Board in December of last year and February of this year.

As this chart shows, The Conference Board has raised its forecast for real GDP growth in all four quarters of this year. The largest increases are in the first two quarters of 2021, which indicates The Conference Board's economists now believe the economic recovery is progressing faster than they previously anticipated.
For the entire year, The Conference Board expects real GDP to grow 4.4%, and it expects the U.S. unemployment rate to fall to 5.0% in the fourth quarter. The Conference Board is now projecting that the monthly output of the U.S. economy will return to pre-pandemic levels in July of this year.
The Conference Board's February forecast is based on four assumptions:
  1. New cases of COVID-19 peak early in the first quarter, and no widespread lockdowns are implemented.
  2. COVID-19 vaccinations rise in the first quarter, and vaccines are broadly available in the second quarter and universally available in the third quarter.
  3. The federal government approves a $1.5 trillion COVID relief package in March, and the fiscal support is deployed in the second quarter.*
  4. Modest improvements in labor markets and consumption in the first quarter precede a sharp rebound in the second and third quarters.
The Congressional Budget Office Forecast
The U.S. Congressional Budget Office issued a new economic forecast in February of this year. In this forecast, CBO projects that real GDP will grow 4.6% in 2021, and that the unemployment rate will fall to 5.3% in the fourth quarter of this year.
CBO noted that it was projecting a stronger U.S. economy in 2021 (compared to its July 2020 forecast), ". . . because the downturn was not as severe as expected and because the first stage of the recovery took place sooner and was stronger than expected . . ." CBO is now forecasting that real GDP will return to its pre-pandemic level in mid-2021.
It's important to note that CBO's forecast does not factor in any impact from President Biden's $1.9 trillion COVID relief proposal.* The forecast assumes, " . . . that current laws governing federal taxes and spending (as of January 12, 2021) generally remain in place and that no significant additional emergency funding or aid is provided . . ." (Emphasis added)
Many Economists are Even More Optimistic
Many economists are even more optimistic about economic growth in 2021 than The Conference Board and the CBO. For example:
  • On February 9th, Goldman Sachs raised its forecast for 2021 real GDP growth in the U.S. to 6.8% from 6.6%.
  • On February 22nd, Bank of America increased its estimate of 2021 U.S. real GDP growth from 6.0% to 6.5%.
  • On February 25th, Kiplinger predicted that U.S. real GDP will grow by about 5.5% in the first quarter and by 6.2% or more over the entire year.
Marketers, Get Ready for Growth
As I wrote back in January, the biggest challenge for marketers this year is to align their level of marketing activities and spending with business conditions that are likely to be evolving rapidly. The economic forecasts described above suggest that the U.S. economy is poised to generate robust growth in 2021. So marketers need to be preparing now to take advantage of the expected growth.

*On March 6th, the U.S. Senate passed its version of President Biden's $1.9 trillion COVID relief package. The Senate's version differs from the version previously passed by the U.S. House of Representatives. Therefore the House will need to approve the Senate version, and the House is expected to vote on the measure on March 9th. 

Top image courtesy of (CC).