In every commercial due diligence assignment, clients reasonably expect a proper brand equity analysis. And yes, good diligence requires the requisite measures (i.e., relative brand familiarity, performance on the most important drivers-of-choice, likelihood to recommend/promote, etc.). Investment teams and the IC will always want to review these findings and take stock of the implications. But it is my observation that very many deal team members only focus on the results insofar that they check that the Target company has strong (or sufficiently strong) relative brand equity; and with this, they are missing big opportunities to drive value.

Here are two examples of methods that will reveal a lot more about the opportunity to pick a better winner and put in place a fact-based commercial action plan. I like them both but, admittedly, I love number one (below) - as it can be huge (from a ROIC perspective). Both of these exercises proposed are cheap and only take a little time and attention - and way too few do it.

Brand Equity Derived Strategy #1: Pent-up, Primed to Tap, Brand Equity ... when RBE > RMS ... you win

By my measure, this is the holy grail of investment opportunities, and brand equity measures can surface this particular holy grail a lot more easily than is understood.

This exists in just about every market, and one or two players have it to some degree, and if you get good at identifying the situations where a company’s Relative Brand Equity (RBE) exceeds Relative Market Share (RMS) there is a super strong case that you found a super smart target that can earn you a greater ROI.

It’s not every day that you can notice RBE exceeding RMS (i.e., RBE>RMS) in an overall line of business - but there are many cases where investors have. Lowe’s had it when it gained radical share from Home Depot; Home Depot had it when it gained share from the local hardware store; Apple had it before it gained radical share across a whole host of businesses. I have a much longer list.

The condition will, though, very often exist among one of the competitors, in at least a specific market, or within a specific customer segment (or segments). If those are big enough and if the excess is material enough, and you take the time to identify the opportunity, there are few more certain ways to enjoy a positive commercial wave at the right price.

It starts with a player that is not first, second or maybe even third in its market (and this is good, because this company is going to cost a lot less to buy). But this company has something else more valuable to you as an investor – the fact that the company somehow, some way, earned relative brand equity that is in excess of its relative market share (for a segment, for a market, or for a line of business). This is a company that, it turns out, has been doing a bunch of things right and it is primed to use this untapped brand equity to drive disproportionate growth and profits.

The technique to identify this opportunity is simple. Just apply standard brand equity measurement exercises and standard market share measurement exercises – but drill the results down to lines of business, and drill down to specific markets (geographic, application), and drill down to specific customer segments. This is where way too few investors spend time. They keep things at way too high of a level (no drill downs and keep sample levels too low) and therefore miss the far greater number of opportunities. One of the coolest parts to this is that this is a super inexpensive exercise.

Find the cases wherein one of the competitors is doing better with relative brand equity (relative to competition) than it has yet to realize in relative market share. This is the pent-up, primed to untap, brand equity that I referenced earlier.

When a company is in this RBE>RBS position, what it most needs is to keep to the playbook, let the quarters tick by, and have the resources to let its playbook play out. This is a company that is in a pretty great position to win; and whichever investor is behind this company and can bring a resource base to thoughtfully fuel the share expansion, is an investor that is pretty well positioned to earn a disproportionate return. This is a Board that is more than fulfilling, and a whole lot less frustrating, to be sitting on.

Brand Equity Derived Strategy #2: Direct Resources in "Close Gap" Drivers-of-Choice to Capture Share

Few investors get excited by declining or flat markets. So, they look for upward demand and pricing trajectories and then they seek the safety of a company with sufficiently strong brand equity. And as long as they don’t overpay (as if that is easy) they can do okay. But if you can find the same (demand growth), coupled with a share capture opportunity, you will do a lot better. So, what should you look for in the diligence exercise? I offer the following analytical process steps:

1. 1. Look at the key Drivers-of-Choice (DoC) of each of the primary competitors’ customers
   2. Determine which of the DoCs have been gaining greater significance (note that the 'up-and-comer' DoC represent the very best opportunities to drive switch)
   3. Compare how the target company performs on these DoCs – relative to how the competitors perform
   4. Determine the significance of the performance gaps – if they are large, you will face a costly battle (or better have a few great tricks to deploy)
   5. Measure the economic size of the opportunity to gain share points with these customers (by folding in the findings on competitor market share)
   6. Examine what these customers said about perceived switching costs
   7. For the Drivers-of-Choice where the performance gaps are modest (and especially with any DoC where the Target has advantage) determine if the management team (and/or your investment team) has 1) significant ideas (and rigorously pressure test in diligence); and 2) access to, or the ability to access, the necessary resources to help overcome the percieved switching costs, and win over these customers

When this stacks up to a winning story you have likely built an incredibly useful opportunity for the 100-day plan.

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