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).