Branding is a business strategy. It can justify higher margin because customers trust the brand based on their prior experience or because the brand is the best match for their preferences with respect to one or more product characteristics. The value of the brand to the firm is the price premium it commands.
Successful branding can increase loyalty among customers, making them less likely to switch from purchase occasion to purchase occasion, even when competitors offer a discount. This creates value by maintaining volume and market share, avoiding loss of sales to customers. A strong brand also creates leverage with channel members who benefit from stocking higher volume, higher margin products. Such leverage can result in more or better shelf space at retail, more frequent or prominent display, promotion, or advertising by the retailer on behalf of the brand, and greater cooperation in joint marketing efforts. The value of a successful brand should be obvious. So, why do marketers so often complain that they have difficulty convincing senior management to invest in branding efforts? The answer is in a question CEOs frequently ask about their marketers: “Why can’t marketers justify their requests for resources?”.
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The answer to the CEO’s question requires a focus on resources. The view of many, but certainly not all marketers is that branding is (usually) a good thing so the firm should spend on it. To be fair, this is a common view among business professionals who do not have profit & loss responsibility and who are laser focused on a specific task or function, whether that be marketing, operations, human resources, or some other area. Managing a business is about making trade-offs regarding the use of always scarce resources. The critical strategic question is not should we invest in a brand. Rather, the critical question is, of all of the many ways that the firm might use its resources, is a specific branding effort the highest and best use of resources. Credible marketers will help their CEO’s answer this question; they will make the case that the use of resources they request will produce outcomes that are superior to all of the other possible expenditures, or, at the very least are sufficiently superior to other uses of resources to merit selection over other potential uses of resources. And, the discussion of outcomes needs to be in terms that permit comparisons of very different activities within the firm, that is, in financial terms.
There are many good things with positive outcomes on which a firm might spend time, effort, and money. Hiring and retaining smart, creative, energetic employees is a good thing in the abstract. Improving product quality is a good thing, in the abstract. Building a brand is a good thing, in the abstract. However, not all ideas, even really good ideas, will merit funding when a firm must make trade-offs regarding the use of resources. Even in a branding context, some brands within a firm merit more support than others because they serve larger markets, command greater price premiums, have greater growth potential, or otherwise dominate other brands on important dimensions with financial implications.
Many of the things on which marketers focus are about how outcomes might be achieved rather than the outcomes that matter to the firm.
This is rather like focusing on drawing up plays rather than scoring touchdowns. “How” matters, just as drawing up plays is an essential part any football game. But the “how” should not be confused with the outcomes. Discussions of marketing activities and their related more immediate outcomes are about “how” not the outcomes. Awareness matters, loyalty matter. But these are not the end goals. The goals that matter when justifying uses of resources are financial; the metrics necessary for determining where to spend the firm’s resources are financial. This means justification of resources for branding, or any other marketing activity needs to focus on things like volume, margins, and cash flow, or in the case of requests for incremental funding, the incremental volume, margins, and cash flow. This does not preclude consideration of competitive pressures – if there is reason to believe a competitor will be more aggressive, marketing expenditures can be framed in terms of what might be lost without marketing expenditures. The means for achieving financial outcomes, the various marketing metrics are appropriate topics for the marketing team; they are not helpful to a general manager who must decide which of many good ideas to fund or a CEO who must justify the financial performance of the firm to investor.
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Marketers need to appreciate that decisions about resource use are specific. The fact that there are examples of brands that have been and are wildly successful in financial terms does not provide justification for a specific expenditure. Statements that amount and timing of financial outcomes are difficult to estimate are not credible; they suggest uncertainty which will lead any rational decision maker to discount them. This is why firms do not invest. Making and defending assumptions, with the support of data, is part of the process. The objective is not to get the numbers exactly; rather the objective is to make the best decision for the firm – the highest and best use of resources.
Every organization has resource limitations that require hard trade-offs. Marketers will have greater credibility and greater influence when they help the CEO and CFO make these trade-offs. Sometimes this may even mean acknowledging that the firm has better opportunities than further spending on a particular brand.
Contributed to Branding Strategy Insider by Dr. David Stewart, Emeritus Professor of Marketing and Business Law, Loyola Marymount University, Author, Financial Dimensions Of Marketing Decisions, and Chairman of the Marketing Accountability Standard Board.
At The Blake Project, we help clients worldwide, in all stages of development, define and articulate what makes them competitive and valuable at pivotal moments of change. Please email us to learn how we can help you compete differently.
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