MANAGING BRANDS FOR PROFIT
by Professor Guenther Mueller-Heumann, Emeritus Professor of Marketing (Otago),business consultant, seminar leader, Auckland, New Zealand.
One of the latest fashions from the USA is to require marketing managers to provideproof of the financial return on marketing expenditure. In most instances a straight ROIcannot be worked out because of long/short-term allocation problems of marketingexpenditure and thus the "qualitative" (not immediately recognisable sales) nature ofmarketing spending and marketing itself.It is, however, a challenging idea to relate the core of marketing spending, namely themoney invested in brand building and brand management to the basic formula for ROIwhich is: ROI equals profit (as sales minus costs) over the capital invested for thebrand.
Financial Brand Asset Values
Starting back to front, what can be said about "capital invested", that is ultimately part ofmarketing budgets? The asset value, the capital invested in brands, was first formallyrecognised when in 1984 the News Group (Rupert Murdoch) put financial values forsome of their "mastheads" (publishing titles) into its balance sheets.What may look like a breakthrough in marketing orientation was, however, quite adifferent story: Goodwill write-offs from many acquisitions had reduced much of thereserves in the balance sheets of the News Group and in particular the debt to equityand other financial ratios which banks are terribly interested in.A trend of balance-sheet brand valuations started, stretching from the UK to Australiaand elsewhere. . The challenge though to the accounting profession is to develop a"brand accounting system" - far beyond the occasional brand valuation.
Annual Brand Asset Valuation
e = a - b + c - d
a. Brand Asset Value (from the previous year)b. Depreciation ("natural decay" of brand asset value without marketingsupport)c. Net Brand Marketing Contribution during the year*d. "Waste Factor" (due to competition, government influence etc.)e. Brand Asset Value (for the year)*
Note: ‘
Net’ means that part of the annual marketing expenditure that iseffective for building or maintaining
brands. This would normally be only aproportion of marketing expenditure. Some of the total marketingexpenditure would show up under d. (“Waste Factor”), for example thatpart of marketing spending that is required to compensate for competitivepressures. The Net Brand Marketing Contribution could even be negativein any one year. For example if much of the marketing budget has beenspent on short-term sales promotion and the effective residual marketing
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