Corporate Strategic Planning & Acquisitions – Market Share Or Brand Value Which is More Appropriate?

Corporate strategic planning is along term planning to prepare the organization for remaining competitive in the market through an optimization of its strengths and mitigation of its weaknesses. In the process the organization finds itself reconfiguring, if required to meet the changing needs of the market.

The strategic planning process asks for an analysis of organizations strengths and weaknesses and the maximization of its resource utilization by arriving at a best fit between its strengths to opportunities that exist in the market and minimizing the disabling impact of its weaknesses by the threats. It therefore has to find a method of actually dealing with each of the weaknesses and how these weaknesses should be protected from exploitation by competition to their advantage.

One of the strengths is the overall position of the organization in the market place in comparison to the other competitors, especially those that are an immediate threat to the organization. If the organization is very strong relative to its competitors, then it could be in a comfortable situation provided it stays alert and capitalizes on its strengths. In order to gain overall dominance in the market place each of the business units or products of the organization need to be managed well enough to be the winners.

An organization can have lot of strengths, ranging for easy access to technology, very high quality, loyal and productive employees working for it and may be strong distribution system. These strengths would be of value to the organization only when they actually can be converted into a measurable strength in the market, the end point metric of the marketing, which is how much market share? Thus market share seems like reasonable measure of company’s strength in the market place.

It is also to be acknowledged that if strength does not lead to a measurable impact in the market then that strength can become redundant. It would be like owning a high quality brush that cannot be used on the surface where the artist needs to paint in order to win the painting competition. This strength would have no relevance in the specific situation

The second important aspect that one might like to consider is a comparison to the competition. That is if we wish manufacture a product, we need to ask ourselves how far are we better than all competition with respect to that product so that we can actually be superior to competition and thus manage to get the highest market share, which in turn will contribute to the organization’s over all dominance in the market. One of the ways for knowing the difference in the strength in its final form is to measure market share ratios between organization market share and that of competition.

This was the approach taken by the Boston Consulting Group. In their portfolio analysis, they use relative market share as the measure. High ratio indicates high strength relative to competition and lower ratios indicated lower difference. It is their recommendation that organization’s should focus on the business areas where much stronger than competition provided there is also good growth potential for it in the market place. Most models, irrespective of what approach they use come to this conclusion, which is logical; after all, who would want to waste resources in places where we cannot deliver quality product or where there is no good growth potential?

There is one important question to ask here. That is, can the current market share, which is vulnerable to the loyalties of the consumer, therefore likely to change, be taken as a good measure for future predictions?

An alternate approach would be to look at the brand values as the measures. Such values are future oriented as the future cash flows go into their measurement. They are also possibly more robust as they represent the composite of the tangible and intangible strengths of the organization that owns the brand. These values are computed in a very systematic way and represent the opinions of knowledgeable persons compared to market share which might be subject to errors coming from different sales records. The market share accuracy can also be subject to how it is computed, for example capacities, or dispatches or actual sales in the market.

When brand value is used as the measure the ratio of the brand value of organization and that of the relevant competitor would be the measure instead of relative market share. Higher ratios would now mean that the organization present and predicted future strength is also high compared to the competitor. Since intangible measures like customer loyalty that denotes the strength of brand’s relations with its buyers, are also incorporated in the best methods, the affect of changing consumer loyalty can be minimized.

One basic requirement would be that a comprehensive and identical method should be used to compute the relative brand values. Any values computed by different methods can not be used. A second important observation would be that reliable data on the competitor is obtained through the market research. But this is a prerequisite in any method and is not unique only to this approach.

Irrespective of whether the brand values are incorporated into the strategic models that use ratios relative to competition, it is important that these values per se should be taken into consideration for strategic planning purposes.

Audits and tracking of brand are already in use, but seems to have remained at brand management level. They need to be extrapolated into brand values, and their use must be extended for strategic planning purposes. In this context, it is meaningful to suggest that brand valuators need to declare some norms on an appropriate method for brand value measurement.

Brand values and relative brand values can be used effectively in acquisitions as well. Coupled with the book value and market values, a comparison of brand values with that of the competitors brand values, can give a future orientation to the evaluation for acquisition purposes. Given that powerful brands have high extension potential the use of brand value in evaluating the future potential of a company can be very useful.