Yes, I am a recovering marketer. For years, I was addicted to data that wasn’t always the healthiest. Brand tracking, U&A studies, focus groups, sales figures, industry reports, customer service stats; I couldn’t get enough. And, like all responsible marketers, I consolidated them and used them as the statistical basis to support strategic recommendations for brand investment. Despite this effort, and years empirical evidence, it was an uphill battle to convince boards or leadership teams to invest. What was missing was their math. The math used in Brand Economics.
The beauty of Brand Economics lies in its ability to link disparate data to financial performance in an incontrovertible way. It applies the same types of math that have calculated lunar landings and the complex trajectory for a safe return to Earth. This discipline allows marketers to answer meaning-of-life Brand questions in a quantifiable way that make sense to CEOs and CFOs. Questions like:
How long will it take for Brand investments to impact financial results?
What is the financial benefit or risk of reducing, maintaining, or increasing Brand investment?
What is the financial upside or downside of another division’s decisions, short-term and long-term?
How much is Brand’s financial impact dependent on marketing investment vs. other organizational investments?
What is the maximum attainable market share and why?
Which Brand drivers will significantly change behaviors that impact financial results?
Here are a few examples of what Brand Economics has done for others.
1. Calculate Time for Brand Investments to Payback
A company increased their Brand investment significantly and wanted to understand how to measure payback. The Brand Economics model analyzed category lifecycle, sales cycle, customer lifecycle, CLV, cost-per-acquisition, revenue, profit and churn along with the 3 other Brand Economics pillars (see earlier article by Mark Radhakrishnan). Using several branches of mathematics that would take pages to describe here, the model determined that payback started after 23 months.
With this information, the company was able to more accurately forecast revenue and manage investor earning expectations. And the CMO could be set up for more realistic KPIs.
Brand investment, usually financed through Marketing, is an expense that should be treated as CAPEX when you consider the definition: “the useful life of the asset”. Current financial reporting expects Brand/Marketing activities to pay back within the calendar year of its execution. Major IT upgrades or factory equipment purchases have financial principles that account for build time, training, lost productivity, maintenance time and cost, and longevity. Why not Brand? It is a life-long corporate asset.
2. Substantiate Brand Investment Over Other Organizational Investments
A B2B company was looking to double their business organically in 5 years while maintaining profitability objectives. Brand Economics was used to calculate the financial contributions of the various divisions including Sales, Marketing, Client Service and Operations.
The analysis revealed that incremental Marketing investment in Brand had a greater impact on purchase than Sales, despite Sales spending three times more. Based on these findings, the CEO and CFO approved a significant budget increase for Brand Marketing and a reduction in Sales. This resulted in the company achieving their Year 1 growth target.
Brand investment should not be the first priority. It also shouldn’t be the sacrificial lamb when budgets are tight or when performance may not meet analyst projections. Brand should be considered along with all other major strategic decisions and investments, and weighed according to its overall financial contribution. A short-term cut today could do far more damage to your business down the road.
3. Identify Brand Drivers that Show You the Money
A company was looking to reposition and rebrand itself in a highly commoditized category. Qualitative research was conducted and a new positioning platform developed. The Brand Economics model was applied in tandem.
The model revealed that current brand drivers were not influencing any meaningful behavior and therefore not converting to revenue. The Brand Economics analysis also identified alternate brand drivers that would have the greatest impact on behavior and, ultimately, on sales and revenue.
This is the math CEOs and CFOs are looking for.
Brand Economics is a game changer for CMOs. Marketing math cannot contend with an entrenched financial approach to decision-making, so it is time to look at new methods. Marketing mix models and ROI are great, but they are tactical.
Marketers own the customer and steward the Brand which is worth, on average, about 20% of a company’s value (source; Ocean Tomo 2016 and MASB/Strata 2017). That’s a value worth investing in.