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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
 
budget is not sufficient for brand maintenance (compensating for the“natural decay” and competitive pressure on the brand).
Consumer-Based Brand ‘Equity’ Value
There is another kind of brand ‘equity’, sometimes referred to as 'consumer-basedbrand equity', which also determines brand profitability. It reflects the strength of a brandin the consumers’ mind. It can be seen as an indicator of the durability of a positivebrand image and thus of profitability.Brands, in a way are a "silent salesmen", selling the product even when the salespeople are not there. Brand profit therefore depends on the strength of the brand andhow well it is managed. The continuous presence of a strong brand in consumers'minds can create enormous marketing productivity effects.The strength of a brand depends entirely on what consumers (users and non-users)think of it. Consumers accumulate consumption and non-consumption experiences(including word-of-mouth) of known brands in their mind. These "experiences", manybut not all caused by marketing strategies, build up over time, and become "imprinted"in people's minds.As a little experiment, just consider two simple brands - JVC and SHARP . . . By justthinking about these brands, not only "pictures" of the actual products associated withthem pop up automatically, but also one's personal brand preferences. Surprisingly,apart from the brand names no other marketing input is required to bring up thesepreferences!
Brand Triggers and Associated Images
Differentiating between the brand triggers such as a brand name, a distinctive logo oreven a distinctive product design (ie. the shape of a BMW), or a colour scheme (BP) etc.and the brand associations (brand image) triggered by them is a first step tounderstanding what makes good brand management. Since these triggers are learned- and often loved - by consumers, they have to be kept consistent over time.If brand triggers change suddenly (creative people in agencies love to do that), theaccess to the associations stored in the mind can get irritated. Consumers askthemselves, "Is this really still the same product?" A suddenly changed brand triggercan cost millions of hard-earned brand-equity dollars and ruin brand profits by throwingconsumers back into a search mode.Brand triggers not only have to be consistent over time to ensure consumer trust, but theelements that make up the trigger - brand name, design and other distinctive features -have to be consistent internally. Certain colours, for example, go better with certain typesof products than with others. (For example, green men's shoes are definitely a smallniche product.)Harmony between the visual elements of the brand trigger - including name, logo,design, packaging etc. - has to be found. This is the high art of branding building which
 
neither academic research nor marketing practice has found hard and fast rules for -yet! The image projected, for example, in advertising, also should be consistent with theappearance and the "meaning" of the brand triggers.It is interesting to observe that the strength of the primary image of the brand triggers ismore important for
new 
brands than for established ones - for which consumers havebuilt up associations that are "imprinted" in their minds. However, even establishedtriggers have to be applied consistently.
Brand Equity and Brand Loyalty
Consumer-based brand equity goes far beyond just the trigger communication. Itcomprises the long-term market benefits for the company from customer satisfactionand brand loyalty, caused by positive brand imprinting of customers. The latter isachieved through the net effect of a brand-conscious marketing strategy, product/serviceusage and word-of-mouth effects. Advertising is but one part of the whole process.From the consumer perspective, the three fundamental building blocks for buildingbrand equity are a) brand/name awareness, b) perceived product quality image, and c)perceived "extended brand image".Awareness is necessary as a base for good brand management, because withoutawareness, the two - holistically perceived - image components can otherwise not be"hooked in". As a cardinal rule, it is important that both the perceived product/servicequality image and the perceived extended images are distinctive - and synergistic! A notvery distinctive commodity-quality-like product (or service) is difficult to brand. A brilliantluxury-quality product with a weak "extended image" is equally difficult to market.
Segment-Specific Brand Images, B2B, Service Branding and Corporate Identity
It is important - and usually ignored - that different consumer segments can perceive themix of product quality and extended image in different weight combinations. Take as anexample what image combinations a middle-of-the-road brand of modest-quality caskwine generates in the mind of a very ordinary wine drinker as compared to that of aconnoisseur. Survey research-based "perceptual mapping" can assist here determiningwhere products and their various image components "sit" versus different benefit-seeking segments of consumers.In business-to-business branding, trigger and various image associations also apply.The contents of the image components may, however, be more business-related andnot necessarily more "rational" as naive academic textbooks claim! Business-relatedimages usually contain factors such as effective product information, prompt delivery,reliability, competitive pricing, after-sales-service etc. Also, marketing to an organisationmeans taking into account the various roles played by various people in the "buyingcentre".The concept of the "moments of truth" helps: At each point of contact between themarketing organisation and the various people in the customer organisation, a smallpart of the overall brand image of the marketing organisation and/or its products isformed, changed and stored. This emphasises the importance of staff performance in
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