Tag Archives: Goodwill

Create value and the profits will come.

According to the classic economic theory, the social responsibility of business is to create profits. But if making profit is your only reason to be in business and guides all your decisions then – ironically – you are not likely to create a very profitable business.

Profits are one Key Performance Indicator, which, in association with other parts of a decent balanced scorecard of measurements, show you that the approach you are taking is working. Profits are the natural by-product of a successful strategy.

But if you focus on the profit itself, then you are going to think short-term. You are going to make decisions that harm your customer relationships because they are inherently selfish. You will never build anything resembling loyalty; the goodwill that makes your business more valuable than its basic assets (ask an accountant for proof) will never grow.

Instead business is about value creation. The ultimate questions are: how can we create more value for the customer, and how much is that worth to them?

Social Media can be a useful tool in building value and relationships. But it can also just become a cost of doing business, an additional marketing channel, which doesn’t really provide any additional value to your customers.

Similarly retail environments can be just a place to close the deal, a final funnel to fulfil all that built-up demand. Or they can be places that focus on building value and relationships, where people flock to not only buy at the lowest price, but to feel informed and involved and *valued*.

So keep an eye on your profits, but make decisions based on how you can increase the tangible and intangible value you provide your customers. Your brand will thrive, your share price and profits will grow, and your customers will thank you.

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The Goodwill Hunters

My former colleague Karl Long puts it succinctly: “the very heart of strategy rests on the value creation question, who does it, why, by what means, and how do we do it better and cheaper than the other guy”. One way to create value, he proposes, is to create and lead a community. Communities add real but intangible value via the connections that they provide (hat tip to Scott)

Social communications tools provide the ability and opportunity to deliver actual, albeit intangible, value e.g. perception, reputation and trust, emotional attachments, and, perhaps most importantly, customer satisfaction.

In accounting terms, when one company acquires another, the excess paid above and beyond the tangible assets is called the Goodwill. Goodwill is made up of many things, including: perception, reputation and trust, emotional attachments and…

Goodwill is an asset that is worth building.

Chris Brogan was at the #likeminds summit I was lucky enough to attend last week, and he mentioned Milton Friedman’s point that businesses primarily exist to return value to shareholders. Although people are free to question this, it reminded me that a company’s valuation is not merely about this quarter’s profits, but is instead dependent on its ability to generate future profits. Today’s sales keep a company afloat,  but business value is determined by intangibles like Goodwill.

Rather than focusing on increasing this quarter’s sales, the role of marketing is helping and delighting customers. Making customers feel like guests or members of a club is a great way to increase the amount of value that you are providing them.

Seth says: just make remarkable products. Even though not all of us work directly in the product development team, we all have to think about how we augment the value of products by keeping value-creation in mind – baking in our marketing, as Bogusky has written about.

As difficult as it is to construct, a phone is just some metal and wires and it is really quite low value in terms of its tangible assets. Once we add services and software capabilities to the mix (what we at Nokia call the “solution”) then the value is greater. But still, the value really only exists once the customer starts to use the product i.e. once the solution meets the context in which it is used.That is where marketing should be focused.

It’s difficult to measure Goodwill, but it gives you super profits. Literally.

Goodwill is notoriously difficult to measure (sound familiar?), but it does exist. One method of valuing Goodwill is to look at the overall “super profit“: the difference between the profits made by investing the tangible assets into a business, rather than at the risk-free interest rate.

So, by definition, Goodwill is the super profit: Increase Goodwill, and you increase your profits.

How do you increase Goodwill? Make people feel special. Make happiness your business model. Do things that matter for the people who matter. Be an experience facilitator. It’s about pro-active customer service as marketing, but also about guest experience design. You measure customer satisfaction and happiness and focus 100% on that.

You do all of that good stuff, and when the finance people ask you why you are doing it, you tell them that you are creating super profits and building up the intangible assets they like to refer to as Goodwill.

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