Nonprofit Brands: Don't Waste Their Power
Value talks with John Quelch of Harvard Business School about the untapped potential of nonprofit brands.
Value News Network | May 11, 2007
VALUE: What is it that managers of nonprofits are missing about the value of their brands?
QUELCH: Several things—and they're all interwoven in terms of their implications for how nonprofits think about and use their brands going forward. First, it's important to understand that nongovernmental organizations, or NGOs, that operate on a global scale have some of the most trusted brands in the world. (Let's get the definition clear at the outset. By NGOs, I mean both nonprofit associations trying to provide social services on a global scale, and nonprofit organizations that attempt to achieve economic changes on a global scale by influencing governments and corporations.)
When surveys are conducted that ask people to indicate their level of trust in these NGO brands, versus, say, for-profit brands such as major soft drinks or fast-food franchises, the nonprofits come out way ahead. This makes them extremely valuable.
The problem is, many large nonprofits don't realize the veritable gold mine they have at their fingertips, in terms of brand equity. But most for-profit companies have figured it out, and so they're eager to engage with the not-for-profits in alliances and in co-marketing efforts and the like.
The for-profits are thirsting for connections with strong nonprofit brands. The nonprofits are in large part ignorant of just how much those connections are worth. If nonprofits don't get up to speed on the value of their brands, they're going to shortchange themselves (and that's putting it mildly) in terms of the amount of money and other concessions they can expect or demand from a for-profit in a partnership arrangement.
How is it that global nonprofits have created such strong brands? You seem to be implying, at the same time, that they don't know a great deal about branding.
The people running not-for-profits often don't know a lot about the depths of marketing research and the nuances of segmenting customers. They don't have the time or the resources to pursue that knowledge. And so, in many cases, they've chosen one brand name and stuck with it everywhere in the world. And guess what? In the global economy, that is the optimal solution.
These organizations have very strong brand names that are readily identifiable all over the world. Consider, by contrast, a company that uses the same formula, or essentially the same product, all around the world, yet markets that offering under a different name in every country, or region, thus diluting the equity.
What's more, the global not-for-profit brand names are backed by, or driven by, missions that people perceive as very important. Their nonprofit status gives them a substantial "trust halo." And all of those factors sustain and build their brand power, even given that their level of accountability and transparency is generally very weak relative to what's required in for-profit companies.
There have been some very smart PR efforts.
Of course, in many cases nonprofits have done an excellent job of public relations. Take Greenpeace, for example, which has done some very thoughtful and well-received publicity. But that's a public-relations effort. It shouldn't be confused with a full understanding of brand valuation.
The lack of marketing knowledge has been a double-edged sword for nonprofits
They don't fully appreciate the magnitude of the advantage that they have. And in not appreciating it, they don't or won't leverage it effectively.
What would be an example of a nonprofit effectively leveraging the value of its brand?
The first example that comes to mind is the partnership between the World Wildlife Federation and Lafarge, the Paris-based building-materials giant.
Now, Lafarge operates in some seventy-five countries, and it has a workforce of about 77,000 people, with, I believe, some 245,000 shareholders. And Lafarge and WWF have created a productive partnership, where WWF gets funding to support its research and communications, and Lafarge gets the benefit of the WWF brand affiliation. Now importantly, WWF also gets conservation, in the form of a performance agreement with Lafarge. The agreement includes certain milestones that Lafarge has committed to meeting and committed to being monitored on by an independent auditor.
That's a good example of a multi-pronged partnership, and I don't think it would be as equitable if WWF did not have a sense of the worth of its brand.
That seems ideal. But there's a potential downside to nonprofit–for-profit partnerships, of course.
Of course. And there are some NGOs that religiously continue to refuse all collaboration with the for-profit sector. Some believe that their core values and the perception of their integrity would be impugned if they were in collaboration with for-profits. Some fear the spillover effects if the for-profit partner were party to a scandal of any kind. Those are valid concerns.
But then there are other NGOs, such as Habitat for Humanity or WWF, that see partnering with for-profits as a way to achieve scale in their work that they might not otherwise be able to do.
The NGOs that tend not to become involved with for-profit collaborations tend to be more advocacy-oriented. These are the NGOs that have strong positions in the marketplace of ideas. Amnesty International would be one, for example. But perhaps these organizations are being slightly too myopic. They're leaving on the table too much of an opportunity—the potential to scale up their activities in a significant way.
Why is it important to understand the value of nonprofit brands now, as opposed to five years ago, or next year?
The root cause of the urgency to understand this issue now is the sea change in the way people perceive social and humanitarian challenges.
The size and scale of the challenges facing humanity are obviously very substantial. They're probably no more substantial than they have been, but today, with an increasingly global media, they are being understood and measured differently than they had been in the past.
Twenty years ago, you would hear about these problems in a very limited, contextual way. You'd hear "X number of people in a given country are suffering from this or that." You wouldn't hear about, say, the global HIV problem. You'd hear about it in slices.
Today, it's "normal" to hear about the global total number of people who suffer from a particular disease or are affected by a particular environmental danger. The problems are being articulated as global problems, and as a result, the magnitude of these problems is apparent. And the call is for global solutions.
But the NGO marketplace, at the moment, is far too fragmented. The barriers to entry are very low. And as a result, there are a huge number of NGOs competing for resources and competing to deliver relief.
If this were the for-profit sector, there would be massive consolidation in order to extract scale efficiencies. But because it is not the for-profit sector, there are not obvious upsides to consolidations—say, in the form of stocks or options. Merger and acquisition activity in the nonprofit sector is motivated by the need for survival on the part of the acquired entity and the people employed by it, not a positive force for good.
Think about it, though. You can imagine that there are probably many organizations doing, say, malaria relief around the world. Imagine what you could do if you consolidated all of those efforts under one or a few organizations. Imagine the scale efficiencies, the caliber of management you could afford to hire, the management information systems that you could put in place to track the money, the control systems. At every level, consider the difference between a $10 billion corporation and a $500 million or $50 million corporation.
Most of the biggest NGOs don't come close to that size.
Sure. Most of these big entities are still typically short of a billion dollars. And there on the for-profit side, you have Exxon Mobil tracking something like $400 billion.
But what people running NGOs have got to come to grips with is that for them to have an impact they do have to achieve scale. They don't need to hit $400 billion, clearly, but consider an order-of-magnitude difference of 200 to one.
And then consider that most dispassionate, objective observers would say that there's a better chance of me making a difference in the world by influencing Exxon Mobil than by worrying about working through a smaller organization, even if that organization's purpose is singularly oriented around a given mission. There's the penalty that fragmentation and independence and zero barriers to entry brings.
The NGO marketplace is extremely cluttered. And therefore—although it may sound crassly commercial to a lifetime not-forprofit executive—turning your brand into a mega brand is the way to break through the clutter.
What would a practical action step be?
One step would be shifting the focus of the organization from the recipients of the service to the donors who fund the service. It's a radical concept, but think what could happen if NGOs viewed their donors as their customers and the recipients of their services as secondary.
Let me back up a bit. When you go into business, you face the reality of the marketplace. If customers do not value the additional brand or product, it's not going to be around that long. To use a very simplistic analogy, consider the number of ice cream flavors available or the number of shades of paint. Does the world need another variation on the theme? If not, it doesn't fly.
That marketplace reality doesn't come into play aggressively in the NGO arena. One reason is that a lot of these organizations limp along on relatively little money. They survive, but they don't thrive, and there are no shareholders to hold their feet to the fire. Another is that the "customer" in the nonprofit sector has never really been defined correctly.
In the for-profit world, if I buy the ice cream or the paint, I'm going to consume it or use it (or at least know if it was received satisfactorily).
In the NGO world, it's harder to define the term "customer." The donors are not the recipients—so you have two very distinct customers. And of course most NGOs are set up to address the needs of recipients. But if you haven't got any money from donors, you aren't going to be able to deliver to recipients.
Consider another analogy: the television industry. Who is the customer of CBS? The customer is actually the advertiser, not the "end consumer."
People go into NGO work because they're motivated by the needs of recipients. But if we had a few more donor-motivated NGOs or donor-focused NGO leaders, think of the potential gains.
Of course the recipients would be there in the "customer mix," but if you were adding value to donors, you would automatically be taking into account the impact on recipients. The donor expects the organization to take care of the recipients. But the donor expects a host of other things—depending on who that donor is. Social standing, recognitions—there are all sorts of reasons people and organizations give beyond the obvious cause. If the organization marketed itself more to the donors, the potential upside is enormous. Recipients would, of course, benefit.
You seem to want to make another point about NGOs surviving versus thriving.
Yes, and this is a digression because it's a comment directed at donors, but it's an important point. NGOs that merely survive tend to eat up a large proportion of the money that comes in to cover administrative expenses. That measure—how much money is used in administrative costs—is one of the standard benchmarks people use to determine which charity to give to.
But making the choice to donate based on an administrative cost rate can be a huge mistake. Better to consider—at least in equal proportions—the organization's approach to solving problems. A start-up organization might have a brilliant new idea, or new approach, but extremely high administrative costs because of its start-up status. It might be "surviving" because it needs the traction to take off, as opposed to "surviving" because it has little to offer.
Which, of course, opens up another avenue of inquiry for for-profit organizations considering the brand valuation of NGOs. Put the brand-valuation issue up against the value of the new idea or approach of a struggling "new" NGO with a relatively unknown brand...
This interview republished from Value with kind permission.
John Quelch is Senior Associate Dean and Lincoln Filene Professor of Business Administration at Harvard Business School. His research currently includes a focus on understanding the brand power of global nongovernmental organizations. Professor Quelch is the coauthor of The New Global Brands (2005) with Nathalie Laidler-Kylander, and has published numerous articles on marketing and public policy, including "How Global Brands Compete" (Harvard Business Review, September 2004).
Building and Valuing Global Brands in the Nonprofit Sector
Nathalie Laidler-Kylander, John A. Quelch, Bernard L. Simonin, Nonprofit Management and Leadership, Vol. 17, No. 3 (Spring 2007): p. 253–278.