The Problem With Brand Purpose

26/08/2016 11:03 | Updated 26 August 2016

Is it possible that there's a common approach shared by the world's most successful brands? Grow, published by Jim Stengel in 2011, was an ambitious attempt to find out. Stengel, the ex-CMO of Procter & Gamble, discovered that those brands with a brand purpose or ideal - that is, a rationale beyond the mere profit motive - grew faster than their peers. These findings had a significant impact on the marketing community. Sir Martin Sorrell was 'utterly convinced'. However, is having an ideal really the key to success?

The flaws in Stengel's methodology

Let's begin by recapping Stengel's approach. The project started by selecting the brands with the highest scores from Millward Brown's 50,000-strong database. The star performers were termed the Stengel 50. Stengel then searched for a link between the brands. This was found to be a 'Brand Ideal' - a shared intent by everyone in the business to improve people's lives. Next he looked at the chosen brands' stock value growth between 2000 and 2011. Since the Stengel 50 had grown by 393% compared with a -7% loss for the S&P 500 benchmark, he declared that ideals were driving business success. Ideals supposedly didn't just drive growth, they led to stratospheric success.

At first glance, it's a compelling story. But there are issues with this methodology. Let's begin with the stock market success. Stengel uses the growth of the value of holding companies to prove the success of his chosen brands. This isn't an issue when the brand dominates the holding company. It is a problem, though, when a brand accounts for only a small proportion of its parent company's sales, as it does for 11 out of 50 brands.

Furthermore, Stengel compares the stock market performance of his brands with the S&P 500. However, the majority of brands he tracks are not listed on this stock exchange. They are on a mix of European and Asian exchanges, as well as US ones. This is an issue when the Shanghai Stock Exchange, which Tsingtao is on, nearly doubled across the monitored period.

However, the fundamental flaw is that Stengel deliberately chose Millward Brown's most successful brands. It's not surprising that the most successful brands had performed well financially in previous years. If they hadn't delivered shareholder returns, they wouldn't be in the top 0.1% of brands. It's a circular piece of logic.

The next flaw is with the definition of a brand ideal. It's so malleable that it can be adapted to fit most brands. A few examples demonstrate this. Below are the ideals defined by Stengel for three of his brands:

• Moët & Chandon 'exists to transform occasions into celebrations'.
• Mercedes-Benz 'exists to epitomise a life of achievement'.
• BlackBerry 'exists to connect people with one another and the content that is most important in their lives, anytime, anywhere'.

Notice a problem? These ideals are just category descriptors. They could apply to any champagne, luxury brand or handset provider. This isn't just a subjective opinion. My colleague, Aidan O'Callaghan, and I asked 1,000 consumers to match one of six brands to each of these ideals. If the ideals are a genuine fit, you'd expect consumers to recognise his brands. Yet only 21%, 10% and 6% of consumers recognised Moet, Mercedes and Blackberry respectively. This is an issue because Stengel began by selecting a group of over-performing brands. By having such a flexible definition it could be made to fit whichever brands made up the best-performing set.

Another significant flaw is that Stengel did not compare the best-performing companies with under-performing ones. To claim that ideals drive growth, it is necessary to show that successful companies are more likely to abide by a brand ideal than poor performers do.

However, dreadfully performing brands could equally be said to be defined by ideals. Nokia, whose shares declined by 96% could be described as existing 'to connect people with one another and the content that is most important in their lives, anytime, anywhere'. Again, this isn't just our opinion. The consumers we surveyed were 52% more likely to think Nokia fitted this ideal than BlackBerry. If brand ideals can be applied to any company, then they're no predictor of success.

The validity of the argument can be checked by examining the performance of the Stengel 50 since Grow's publication. If an ideal were driving their success then we'd expect over-performance to continue for a few years. We looked at the stock price for each relevant brand from January 2011 to December 2014. We then compared the stock price movement to the relevant benchmark. The results were far less impressive than the 400% improvement originally monitored. The over-performance dropped to a far less substantial 27%. Of the 23 brands monitored, only 12 outperformed their benchmark. This data focuses on the brands that weren't part of much larger holding companies, to make sure it's meaningful.

The size of these flaws suggests that perhaps Stengel subconsciously wanted to show that purpose drove success and then retrofitted an argument. His belief in purpose certainly predates the analysis. He talks about Jif, where he instinctively applied this approach, as one of the proudest moments of his career.

Could someone else prove the importance of brand purpose?

The arguments, so far, show that Stengel has not proved that ideals drive superior profits. But perhaps the hypothesis is true but not yet adequately articulated? There are two reasons why this is unlikely. The first reason is that the consumers are complex. What works in one context might not work in another. Hunting for a single formula for success is a fool's errand. Rosenzweig wrote in The Halo Effect: "Anyone who claims to have found laws of business physics either understands little about business, little about physics or little about both."

The second reason is that success is not wholly down to a company's own actions. Clayton Christensen explored this in The Innovator's Dilemma. Many well-managed companies fail not for internal reasons, but because of a radical disruption from a new entrant to the market. Think mainframe computers disrupted by PCs. Or video rental stores bankrupted by streaming services. The destruction of these companies was not due to a lack of purpose. If performance is impacted by competitors then success can't be guaranteed by sticking to an internal behaviour like a brand ideal.

So why was Grow so popular?

Perhaps its appeal is the straightforward solution it offers time-pressed managers. Simplicity is more appealing than a realistic, but nuanced, explanation. Who wants to hear about improving the probability of success when a pundit is peddling certainties? Or maybe as marketers we bought into the ideal mythology because we wanted it to be true. As Nate Silver warned in The Signal and the Noise, quoting Julius Caesar: "men may construe things after their fashion/clean from the purpose of the things themselves".

Despite Grow's popularity, there is no proof that ideals deliver success. No one has yet uncovered the single secret to sustained business growth nor is anyone likely to. Unfortunately, it won't be long before someone else tries.