Searching For a Silver Bullet

How do you account for marketing effectiveness? The array of opinions as to the best measurement options is extensive. The majority that argues for employing numerous metrics typically uses allegories to make the point: The airline pilot depends on a bank of instruments to operate the aircraft, as no single gauge can assure him that he can stay in the air, is on track, and all is well with the flight.

So it is with marketing, where the savviest use a variety of measures to test the performance of their brand. Marketers look at market share (both volume and value), pricing, distribution, consumer awareness, and customer satisfaction. They measure and track consumer perceptions and attitudes toward the brands in the category. No single measurement captures how well or badly the brand is performing. By extension, marketers are not locked in to any one single measurement that evaluates their actions.

Another Viewpoint

But consider the allegory from a different perspective. Airlines are comprised of numerous aircraft, pilots, and ground crew. If they do their work, the airline makes money. If they do not, the airline goes out of business. While the pilot conscientiously watches her instruments and the administrators on the ground analyze passenger numbers and yields, management is watching a single number: Profitability.

Business leadership expects its divisional heads to weigh the performance of their operations using metrics inimical to their function. Human resources, finance, IT, operations, and marketing all manage their parts of the enterprise and are judged by their specialist criteria.

If the divisions meet their respective targets, the board of directors should see this reflected in the numbers that interest them most. Since boards are appointed by the shareholders to run the business for them, it is not surprising that management’s primary preoccupation is with measures of shareholder wealth. This most often is the net asset value of the business.

Talking Past Each Other

When marketers get in a flap because they perceive their measures are not being taken seriously by the board, they should understand that this is primarily because they are not presenting the measures the board wishes to see. Boards don’t ask individual pilots how much fuel they used, the altitude at which they flew, and whether they arrived on time. They want to know above all else, if the fleet made money.

Brand academic Kevin Lane Keller’s concept of Consumer Based Brand Equity (CBBE) provides a framework to explain the link between marketing measures and the financial metrics needed for board reporting.

Marketers create brand equity in the memories of the consuming public. They make the brand  available through various distribution channels. They set pricing and, through carefully crafted communication programs, create awareness of the brand. Through trial and usage, that awareness creates perceptions that make the brand desirable. If they are successful, they  establish a cohort of users who like the brand and buy it regularly. Their subsequent campaigns are then designed to stop those hard-won consumers from switching to competitive brands, and to add new users to the group.

Different Strokes…

A multitude of measurements are used by marketers to gauge the progress they are making toward their goals of market domination, unseating powerful competitors and blocking newcomers, testing the market for brand extensions, and launching new innovations. Marketing measurements are used to track the source of brand equity.

The outcome is the value that is created by building CBBE. Quite correctly, Keller states that brand value can be measured in a number of different ways. Value is not necessarily financial. Non-financial measures tend to be strategic and are used to set the course for the future.

But the measurement that is of primary concern to the owners of the business is the one that indicates the contribution the brand is making to shareholder wealth. This one is financial. And there is only one. It is the value of the brand asset.

It’s only since the advent of the new accounting standards (SFAS 141 in the United States and  IFRS 3 elsewhere) that brands have assumed balance sheet level importance. And much more has still to happen. That probably explains why there is a dichotomy in marketing circles regarding brand metrics. This is so new that many marketers have not yet realized that brands  are assets and have a relatively new status in the world of finance.

Academics and practitioners who have committed themselves to a set of beliefs will find it hard to change. They were not wrong. Circumstances have changed.

A Bundle of Numbers—the New Truth?

What should ease the transition to this new truth is the fact that the recommended way to value assets is Discounted Cash Flow. The asset value is a single number. It becomes that way through a process that actually captures many of the measures used in the source part of the CBBE framework.

The growth trend, for example, should take account of likely market impediments and category opportunities. It should incorporate brand plans and investment decisions (including those of a capital nature). Properly structured, the discount rate will include the nature of the economy and the risk associated with the brand category. And the analysis of the brand accounts, which is fundamental to a DCF type valuation, will expose the way the brand is supported financially.

The Prophet brand valuation methodology goes further still because it models the entire expected economic life of the brand being valued. It determines the number of years in the forecast by combining, mathematically, the ability of the brand category to sustain economic profits with the relative position of the brand as compared with others in the category. The statistics for this calculation come primarily from the data used by marketers to measure the effectiveness of their activities.

Time to Change

If all the airline employees meet their objectives (fly the aircraft economically and on time, carry  optimal loads, and give outstanding customer service), the business will make money. It’s a multitude of measures wrapped into a single number. Similarly, if all those (not just the marketers) responsible for the health of a brand meet their targets (maximize share, sustain product or service quality, gain new users, maintain customer satisfaction), their success will be reflected in a growing value of the brand asset.

A single metric for the measurement of brand performance is no longer a “nice to have.” It is becoming a necessity. This is the way enterprise management and its finance advisers want to see brands and marketers at all levels will enhance their relevance by understanding and employing this new form of measurement.