Braintrust Query: Are Marketers Mortgaging Their Brands’ Future?

Discussion
Dec 03, 2009
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Commentary
by Joel
Rubinson
, Chief Research
Officer, The Advertising Research Foundation

In
the early 1980s, $50 billion or more was shifted by U.S. marketers from
advertising to trade promotion. The
reason was that IRI and Nielsen made weekly store scanner data available
that showed huge spikes in weekly sales when a trade deal (e.g., end of
aisle display with price off) was run. A
typical result was that only 5-10 percent of lift above baseline was
associated with advertising. Obviously, trade dealing was the way to
go.

In
2005, in an ANA Advertiser paper, I asked marketers to consider, “Where
did the baselines come from”? Why
do some brands have 5-10X the baseline of their competitors? Maybe
we should start focusing on the baseline as much as the spikes.

Professor
Len Lodish noticed the same thing and in HBR 2007 co-authored a paper
entitled, “If brands are built over years, why are they managed over
quarters?” He
notes that promotions lift sales but also reduce baselines and increase
a brand’s price sensitivity. However as brand management rotates from
brand to brand, they hit their numbers with effective promotion and,
by cutting the 4th quarter ad budget, leave the problem for the next
team.

The
assessment? Marketers are mortgaging their brand’s future.

However,
even if a marketer commits to measuring advertising’s impact on brand
value, the path forward is unclear.

Prof.
Lodish calls for a dashboard approach, where baselines are re-calculated
regularly so the effect of brand-building can be assessed against brand
baselines and changes in price sensitivity. Unfortunately, excessive
promotion will reduce the baseline making it appear that promotions are
working and incorrectly concluding that a simultaneous ad campaign is
reducing the baseline, leading to more promotion and less advertising —
reinforcing the exact wrong conclusion.

Another
approach would be to calculate the financial value of a brand in a way
that is trackable over time. However,
at this point, two main ways the industry can choose to do brand valuation,
BrandZ and Interbrand, produce quite different answers as shown in the
following graph (2008 data) that depicts brand value (in millions) on
those brands (ranked by BrandZ valuation) in common to both sets of rankings.

Especially
in recessionary times, marketers are tempted into make exactly the wrong
decisions by cutting advertising and minimizing sales declines through
promotions and this temptation is not offset by a way of linking advertising
to brand value. This
will have the long-term effect of cheapening national brands and mortgaging
their future.

Discussion
Questions: How can one measure the impact of advertising on a brand’s
value? What are the main challenges of coming up with such measurements
in a promotion-driven climate? To what degree are marketers mortgaging
their brand’s future in the downturn?

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22 Comments on "Braintrust Query: Are Marketers Mortgaging Their Brands’ Future?"


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Dick Seesel
Guest
11 years 5 months ago

It’s hard to separate this topic from Tuesday’s discussion about partnership (or lack thereof) between national brands and their biggest retail partners. While it’s easy to say that national brands have sacrificed long-term equity by cutting their marketing budgets, it’s also hard to argue that retail consolidation has forced serious rethinking of overall strategic spending.

Certainly the retail landscape was much more diffuse 25 years ago; power has become much more concentrated in the hands of companies like Walmart that were barely noticed in the early 80s. (And at the same time there is far less concentration among a few media outlets, with many more choices for ad spending among cable networks, digital media, and so on.) So the national brands who intend to spend against “equity” need to deal with the reality that they must allocate more dollars than ever before to keep their key retail accounts happy.

Doron Levy
Guest
Doron Levy
11 years 5 months ago

Consumers have always associated price with exclusivity. Is there a happy medium between brand and price? I’m biased because for me, turning product is the goal. Products sitting on the shelf is cash that is not in my bank account. Now I do agree that there is some equity in certain brands and I don’t expect Bose or Tiffany’s to have a BOGO sale every Saturday. Perhaps some sort of optimization between marketing, price and brand could offset any erosion in equity. Is that even possible?

Ben Ball
Guest
11 years 5 months ago

The measurement of brand value at this point in time is particularly easy. Retailers such as CVS are providing us with a simple and definitive measure through efforts like their “Ask” program. (For those who haven’t experienced it, this is a systematic effort to “ask” brand manufacturers to increase the profitability of their brands for the retailer by a certain percentage.)

Those who have continued to invest and build brand value over the years are saying “no.” Those who have not are negotiating how much of the “Ask” they are going to have to pay to stay in the store.

J. Peter Deeb
Guest
11 years 5 months ago

This is a thorny subject that is especially difficult given the recent economic situation. Brands are under pressure from the growth of Store Brands due to trial based on consumer belt tightening. Measuring the effects of advertising in a quantifiable way has always been a challenge, particularly in the CPG industry where many categories are being commoditized by retailers improving quality of their brands and marketing them more effectively.

Many major CPGs successfully reduced trade spending in the past decade but are now looking at the need to win back lost share from store brands. The need for analysis of what drives a brand (better quality, uniqueness, competitive pricing etc.) has never been more important and companies need to make longer-term commitments where appropriate, despite the musical chairs in the brand manager seats and the sometimes erroneous assumption that some categories or items have not been commoditized.

Bill Emerson
Guest
Bill Emerson
11 years 5 months ago
Living on promotional spikes is a footrace to the bottom. Unit sales do go up and, occasionally, dollar volume rises slightly. Product costs, however, remain the same or rise when you factor in the attendant distribution costs. In other words, sub-optimal sales and lowered margin. The brand is also damaged as the implicit message is that the product is not worth the original price. Over time, pressure rises to improve the margins, typically by reducing the quality of the product itself. At this point, it becomes a self-fulfilling prophecy. The customer is convinced–it’s not worth the original price. Like I said, a footrace to the bottom. There are, of course, many arguments–market share, narrower retail channels, more diffuse marketing channels, drive for short-term results…the list goes on. What do you do? Maybe you should take a look at brands that don’t resort to this–add Nike and Apple to the examples above. Their money goes into rigorously maintaining a quality, innovative brand image. It seems to work for them.
Gene Hoffman
Guest
Gene Hoffman
11 years 5 months ago

A consumable brand’s value is influenced by four components: its quality and its marketing/advertising acumen, available consumers, its selling channels and trade promotions.

To be sustainable the brand must… 1) have its marketing speak directly to the public to maintain the perception of its “essentiality” and basic value to today’s consumer lifestyles; 2) be able to statistically convince retailers that the brand deserves shelf space based on the consumer pull developed from its on-going marketing effort while balanced against the retailer’s marketing objectives; and 3) be able to get in-store attention via trade promotions. Thus CPG companies must convincingly balance their efforts across the entire terrain of their constituencies. That only leaves the question of “how?”

David Morse
Guest
David Morse
11 years 5 months ago
Joel, this is an excellent article. The questions raised are as old as marketing itself: how to measure the long-term effects of the “pull” of advertising versus the “push” of promotions.” I’m a long-term believer that advertising is necessary to build a brand’s equity in the long term, but the exigencies of the marketplace require that a hefty amount of dollars be allocated to the trade in the form of price promotions. The tendency toward a short-term focus are exacerbated, as has been mentioned, by the consolidation of retailers, the emergence of Wal-Mart, store brands, the short term focus of brand managers who often move from brand to brand, and the price pressures that consumers face in today’s economy. I agree with Joel’s conclusion, that it’s imperative that brands focus as much on the baseline as on the spikes, retaining a commitment to a brand’s value in the long term, and that a brand’s equity not be “mortgaged” to the short term. That means advertising and continued efforts to track advertising’s effectiveness. But that kind… Read more »
Camille P. Schuster, PhD.
Guest
11 years 5 months ago

Manufacturers need to measure loyalty to the brand and retailers need to measure loyalty to the store (online or physical location). If the brand or store no longer provides consumers the value they want for the money they are willing to spend, they will try other brands or stores. When you have a loyal consumer base who purchases the item or makes purchases in the store over time, you also have a predictable stream of revenue which could be another measure.

Other research indicates that during this time period, brand loyalty decreased and the % of consumers made a product choice in the store increased. Consumers were trained to wait for the latest deal.

Ben Sprecher
Guest
Ben Sprecher
11 years 5 months ago
Measuring advertising effectiveness begs an obvious question: what is advertising *trying* to accomplish? The answer is going to be different on a brand-by-brand and even campaign-by-campaign basis. Some ad campaigns are intended to recruit new customers to the brand. Some are intended to reinforce the brand image and value proposition (or, to put it differently, to increase “baseline” demand and decrease price sensitivity). And some are aimed at increasing mind-share, ideally as a way to get shoppers to remember to buy the product they might otherwise have forgotten. Of course, these goals aren’t mutually exclusive, but they are different from one another. Given a sense of the ad campaign goals, measuring effectiveness should really be framed in terms of impact on shopping behavior of particular groups of shoppers. If the ad campaign is trying to bring new shoppers to the brand, then you should measure the percentage of (previously non-buying) shoppers who began buying a particular product during and immediately following the ad campaign. If the goal was to reinforce brand image, then you would… Read more »
Mark Burr
Guest
11 years 5 months ago

Was the statement that Wal-Mart made for Black Friday a promotion or a strengthening of their brand? Even though in my region they lead with a cheap flat screen TV as a promotion, their larger statement, I thought, was a measurement of their brand. When you can simply state that you’ll match any price, on any item, from anyone, without promoting a single item, is that more a statement of their brand strength or a promotion in itself? Or, has the line become blurred between the two?

I personally thought for that particular day and its relative import, theirs was the strongest statement on their brand I had seen. But then again, I might not understand or be missing something. Further, how do you measure that? I suppose at the end of the season…or, further over time.

W. Frank Dell II
Guest
11 years 5 months ago
A number of factors played into the CPG adjustment from advertising to trade promotions. First, cable came on the scene and it become extremely difficult for brands to reach their target market. Yes, under the mass market model, there was great advertising waste, but the execution cost was low. Second is the push for market share. The fastest way a brand manager could get promoted was to increase share, which means promote, promote, and promote. All the comments are correct in that heavy trade promotion pushes an item towards the end of its life cycle. When consumers only buy on deal, there is little image. Yet if any brand manager pulled all their trade spending and only advertised, they would be looking for a new job. Trade promotions are an addiction for manufacturer and consumer. It takes years to break this addiction. No question a brand that consumers buy because they want to versus a deal price has greater market value. I measure this by determining the percent of non-deal sales to total sales on… Read more »
Ralph Jacobson
Guest
11 years 5 months ago
It is always a challenge to put a definitive, tangible measurement on such an emotional topic. It may help to look outside of our industry and see what it means to the brand value of other key brands. Interbrand’s Top 2009 Brand Report (http://issuu.com/interbrand/docs/bgb2009_magazine_final) lists the monetary value of these brands. However, a consumer may have an intrinsic leaning towards a Toyota versus a Ford. One person may only buy Toyotas, and will have to have a seismic event in their brand experience to change that…like perhaps the current recall! The challenge is to put a finger on what Toyota did originally to build their brand. 1) Their entry-level buyer was most concerned with the total cost of ownership. 2) Toyota responded with the most reliable cars in the world. If a CPG or retailer wants to build their brand strength, let’s boil down the consumers’ needs who are in your target audience. Wal-Mart built their brand by consistently offering the lowest price. Period. Simple, right? Not easy to copy, for certain, especially at Wal-Mart’s… Read more »
Ryan Mathews
Guest
11 years 5 months ago

There is a critical and substantive difference between branding and trade promotion. The former is all about creating value over time based on a series of elements beyond price and the latter is about driving sales during very finite periods. Each has its value and each has its limitations. Sales over time is the only effective measure of effective brand building. Our problem is that we seem only interested in thinking in 12 week increments.

Li McClelland
Guest
Li McClelland
11 years 5 months ago

I would put my brand money toward advertising using both innovatively modern, as well as traditional placements. I have always believed that well done and effective brand advertising has a broad and long tail effect that can be felt by consumers for months, and indeed years. Promotions, however, are very here today–gone today and useful only if the purchaser is looking to buy that item right then.

Many consumers can recall ads for specific products and describe them even decades later. (Try the “my favorite ad of all time” game with guests at a party some night.) In fact, in these dark times which call many of us back to comfort food, maybe they should resurrect a few of those old brand ads from the company vaults and re-air them! Young brand managers may not even understand how much existing brand awareness and loyalty could be retapped out there by using a few vintage ads aimed at their nostalgic, yet still very much kicking middle aged market.

Jonathan Marek
Guest
11 years 5 months ago
This is a great topic. It is critical to remember (as many traditional brand marketers and ad agencies have conveniently forgotten) that ALL advertising–and branding for that matter–has only one goal: increase sales. The issue comes with the timeframe of that sales increase. There are two different outcomes of advertising: the “P&L impact” and the “balance sheet impact” (hat tip to Prophet Consulting for this idea). Both need to be measured. It is not enough to say “gee, we better keep investing in the brand,” without measuring the impact. The P&L impact is the sales increase I get right now from call-to-action advertising. This is best measured with testing (though some try to measure it with less accurate econometric models). The balance sheet impact is the idea that your brand is an productive asset. Just as investing wisely to build to improve a factory leads to a stream of profits, so does wise investment to build a brand. The issue here is how to measure–obviously you need to not just quantify the value of the… Read more »
Herb Sorensen
Guest
11 years 5 months ago
In the US market alone, today something like one trillion dollars is transferred from brands to retailers. It’s not all trade dollars, but surely has grown hugely since the ’80s. As one senior brand executive said to me, “My board is asking me what we are getting for our [share of that trillion dollars]?” I would cite three lines of evidence as to what is being gotten for it. First is the careful economic analysis of trade promotions provided by the Ehrenberg-Bass Institute: “We analyzed the outcomes of 1,300 price promotions. In around half of them, the majority of the volume sold was ‘baseline’ volume that would have been sold anyway, at the normal price.” See: “Price Promotions – How much volume is discounted that you would sell anyway at the normal price? Rui Susan Huang and John Dawes, Report 43 for Corporate Members (December 2007)” Paying shoppers to buy your products is a strategy that only retailers can love. The second line of evidence, from Glen Terbeek, “The Agentry Agenda,” p34: “Rather than increasing… Read more »
Bob Houk
Guest
Bob Houk
11 years 5 months ago

The assumption here seems to be that brands cannot be built/maintained through trade promotion (or co-op advertising or co-marketing, or its various other names). That idea should have been destroyed 15-20 years ago when Intel used ingredient marketing with their customers and retailers as the primary tool to build its brand identity through the Intel Inside campaign (which I helped develop).

Years before that, the fabric programs (cotton, wool, etc), on which we modeled Intel Inside, had done the same.

What has changed is that the decline and fragmentation of the mass media has made the store the most effective advertising media. What marketers have to do is to use the store-as-medium better–this is what Shopper Marketing should be about. Done right, in-store promotion can build brands and move merchandise.

Joel Rubinson
Guest
11 years 5 months ago

The comments on my blog from all of you are fantastic and I thank all of you for amplifying the discussion so nicely.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
11 years 5 months ago
I’m a fan of accelerating the development, innovation, added value, and introduction of products as ways to reinforce brands while avoiding commoditization. And, apparently, the brands mentioned today as paragons of brand building agree: Bose, Tiffany, Apple, and Nike. The unique advantage brands have is the ability, intent, and wherewithal to race ahead in new product and new feature development. Then, advertising becomes the only way to maximize these development dollars–something with which retailers can hardly disagree. They must wait for their promotional dollars until a baseline is established for the new products and realistic expectations predicted. By then, still more new products will be in test markets along with their accompanying advertising. Apple, for instance, long ago established a baseline for the iPhone and remained uninterested in any spikes created by promotions–because they didn’t promote. Instead, they constantly advertise the new apps available for their instrument. Still no promotion, but some spikes that can be attributed solely to advertising. Supermarket consumables have the same opportunity, albeit more difficult to leave behind the products consumers… Read more »
Ed Dennis
Guest
Ed Dennis
11 years 5 months ago
Most brands are built to be discounted and devalued. Years ago General Motors initiated a brand degradation program at Chevrolet. For years the Biscayne was the top-of-the-line Chevrolet. Later the Biscayne became a lesser model and the BelAir became the top of the line, the BelAir gave way to the Impala, the Impala to the Caprice, the Caprice to the Caprice Classic. This continued while GM was successful. When their engineering became suspect they reached back to names that had known better days. Today’s marketers can learn a lot from Harley Earl and the old wizards at GM. And some already have. Magnavox used to be a top-of-the-line brand–now it is Philips’ #2 brand. Westinghouse and other old brand names have become budget brands. The truth about marketeers is that many go out of business. Remember Schlitz, Black Label Beer, and Rheingold? Every brand exist among competitors and a marketing slip can kill, but most deaths are attributable to a marketer loosing touch with its consumers. Few die from over discounting because you can always… Read more »
Rick Abens
Guest
Rick Abens
11 years 5 months ago
Joel, thank you for initiating such an important topic. The thread is full of good advice to CEOs and CMOs–perhaps if they follow the advice, then their tenures would be longer. Still, I feel there are a few important things missing in this discussion: 1) the cause & effect relationship between marketing and the P&L, and 2) changes in consumer purchase behavior. Marketing investments have always followed the perceived ROI–which is why the $50MM in the 1980s went to trade promotion when the data showed its return. While our advertising impact measurement methods have improved greatly, few CPG companies are measuring advertising’s long-term impact to the P&L and making investment decisions based on short-term impact results. Seems to me that when we start measuring the full effect of advertising on the P&L, then the investment will follow. The second point is, if marketing is about acquiring and retaining customers then we should consider measuring it that way. We need to start paying more attention to customer behavior metrics to better understand our customers. The current… Read more »
Ronald Lunde
Guest
Ronald Lunde
11 years 4 months ago
Many marketing concepts and practices are based upon the precepts prevalent in the 1950s. Things have changed…marketing management understanding and skills for many, has not. As humans, according to Nassim Taleb, “we do not spontaneously learn that we don’t learn that we don’t learn.” Five issues are driving the value and future of marketing:1. Accounting: FASB/EITF Issues define accounting for advertising and trade promotion expenditures. The Chief Marketing Officer Council listed the ability to “quantify and measure the value of marketing programs and investments” as the # 1 CMO challenge (2007). The CEO and CFO want ROI!2. Background: Andrew Shore wrote, “Commercial Noise, Why TV advertising doesn’t work for mature brands.” It is well worth the read. Note, Trade Promotion doesn’t work very well either. If you would like a copy, check the internet or email me at rl098@aol.com.3. Long Tail: Chris Anderson wrote The Long Tail in 2006. He took a fresh look at product dynamics. Marketers need to change from thinking in terms of bell curves to understanding power curves. I conducted large… Read more »
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