If you’re a first-time reader of this two-part series, you may want to start with this article about the importance of calculating your brand’s value. In today’s crowded healthcare industry, powerful brands differentiate organizations. Brand Valuation is a tool many healthcare entities leverage to measure the strength and performance of their brand.
Once the value of an organization’s brand is known, co-branding opportunities are possible. While co-branding opportunities can take many different shapes, most fall into these categories:
• Affiliations: an alignment between larger health systems or academic medical centers and smaller, most often community hospitals
• Alliances: formal relationships between hospital networks to share resources
• Joint Ventures: agreements between two or more parties to pool resources
• Mergers and Acquisitions: the consolidation of organizations
These co-branding opportunities often occur between an organization with a smaller, lesser-known brand and a larger organization with a stronger, more successful brand.
What are the benefits of co-branding?
Co-branding type transactions such as affiliations, alliances, and joint ventures commonly involve one party having a much stronger brand (within the relevant primary and secondary markets) that can be utilized to capture incremental market share and revenue. The stronger brand typically adds value to the post-transaction venture and the party owning such brand may wish to be compensated for using it.
For example, organizations including Cleveland Clinic, Mayo Clinic, and MD Anderson share their expertise through affiliation programs and joint ventures for a fee. These programs allow smaller organizations to leverage well-developed brands to support their business objectives.
Jim Lloyd, Principle with PYA, a healthcare consulting and accounting firm, is an expert at conducting brand valuations for hospitals and other healthcare organizations. Jim’s firm typically uses a valuation methodology called the “relief from royalty” method, which derives a value based on the anticipated benefits (e.g. revenue) of owning the brand as opposed to having to license it from another party.
“The value of co-branding affiliations should be reflective of the incremental revenue/market share that can be captured from the other entity’s brand as compared to going at it alone”, says Jim.
For organizations with lesser-known brands, the benefits to an affiliation include:
• Ability to compete more aggressively in both primary and secondary markets to gain share and protect against outmigration
• Gained access to clinical resources, protocols, and processes that promote consistent, quality outcomes
• The attraction of top clinical talent, particularly specialists
Additional considerations about affiliations
Many of PYA’s assignments involve determining the fair market value of an academic medical center’s “brand” to a joint venture for purposes of a capital contribution credit (i.e., in lieu of cash). Another key consideration – the additional market share (i.e., incremental revenue) that can be captured “with” the AMC’s brand as opposed to “without” it.
The Impact on Physicians and Patients
Co-branding can sometimes have more impact on referring physicians and physician satisfaction, than consumer preference.
“We’ve seen this first hand,” says Tim Roberts, President of Franklin Street. “We think a big name brand can impact consumer preference, but sometimes it can have the opposite effect. We rely on research to uncover consumer loyalty to the local brand and the effect co-branding will have. When local support for the community hospital is strong, the public can become suspicious, and actually turned off by partnering with a larger brand name. You have to be careful. Many times the consumer just doesn’t understand, or care about a larger brand name.”
Robert’s continues, “However, a partnership with a larger brand can have a very positive impact on physician preference. Physicians can appreciate the new protocols, better outcomes, and the ability to attract new physicians and specialists to their community.”
Brand value is an asset many CEOs and CFOs don’t fully appreciate, or understand. When an organization’s brand has established a monetary value, branding and marketing budgets are seen as an investment, not an expense. Franklin Street, in partnership with PYA, helps to evaluate factors that influence brand strength and provide practical examples of organizations that have successfully leveraged their brand value.