Understanding and Measuring the Value of Marketing in Brands
After interviewing James Gregory in December 2014, I was able to follow up with him to better understand the Value of Marketing in Brands.
John Wanamaker said, “I get half of my business from my advertising but, just haven’t figured out which half.” Mr. Wanamaker discovered this dilemma when he opened his first store in 1861 in Philadelphia. Considered an early marketing genius, Mr. Wanamaker used advertising to drive traffic to his stores. The statement that he made regarding his dilemma has negatively impacted the world of advertising and marketing over the years. Wanamaker’s statement leaves the impression that half of the money that is spent on advertising goes to waste; this is not an accurate observation.
Advertising builds awareness and if it is not creating the effects that you want to see immediately, it is still creating an impression about the business that you are advertising. Studies have shown that over 80% of advertising yields measurable results.
As part of the Marketing Accountability Standards Board (MASB), James Gregory is bringing together top academic professionals and senior business leaders from around the world to discuss the significance of value for brands and how it is reported in company financials. While owning a consulting firm for numerous years, he decided to get involved with MASB after witnessing first hand the destructive effects of insufficient advertising budgets in cases where the value of the brand was not fully understood by senior level management. As the residing co-chair of MASB’s Improving Financial Reporting (IFR) committee, he stands by what MASB can do for our industry. James was the first in his industry to open up our company’s brand valuation model known as the “black box” to be the subject of MASB’s audit, something he is very proud of.
MASB‘s mission is to “establish marketing measurement and accountability standards across industry domain for continuous improvement of financial performance, to encourage the guidance and education of decision makers as well as users of performance and financial information”. Two game changing innovations are The Brand Investment & Valuation (BIV) project and the Improving Financial Reporting (project). MASB, a dynamic organization currently has 7 additional projects underway.
We need an organization like MASB because it is a purpose-driven non-profit that focuses on understanding and proving how brands create value. Once value has been proven, MASB changes the way it is accounted for within the corporation. Both fiance and marketing are brought to the same table to discuss the issue of how intangible assets can be measured and valued over time. Of course, that which can be measured and valued can surely be managed. This may seem like common sense but, there has been a tremendous gap between marketing and finance for well over 100 years. MASB is bringing the two sides together for an invaluable experience that will benefit every corporation.
MASB originated from the need of both marketing and finance to work together in order to create a solution for budgeting constraints and marketing dilemmas. Many times, marketing and advertising budgets are drawn from educated guesses of what it would take to do a job versus being treated like additional business assets. Understanding a precise and consistent method of valuing the potential ROI for marketing programs is a critical goal of the effort.
In figuring out the strengths of a corporate brand, it is necessary to understand that corporate brands represent one aspect of creating brand value. James Gregory’s company was challenged by GE in the early 1990s to develop a model for evaluating how advertising impacted the company’s image while also identifying the value created. As one of the oldest, continuous, quantitative benchmark research projects, the study known as the CoreBrand Index® is used in over 1000 companies across 50 different industries.
In activities such as advertising, marketing, public relations, and investor relations, an organization can track how their branding strategies affect the corporate brand in several ways. When there is a continuous quantitative, benchmark tracking system in place, communication activities have a cumulative effect that can be identified. Massive data on many companies allows them to run regression models on what actually drives value. At Tenet Partners, Gregory is always tracking the image of 1000 companies and communicating results on a quarterly basis.
After over 25 years of research, he has determined that everything a company says and does will have an impact on the image of a company and how it is perceived. These actions are measurable and will impact both the revenue and stock of the company. It may sound cliché but people like to do business and own stock with companies that they know and trust.
Because a brand is an intangible, it is not usually on the balance sheet and by the Generally Accepted Accounting Principles (GAAP), it cannot be placed on a balance sheet unless it has been bought or sold. Because of this, intangible assets grown internally are often represented as having no value. In 1975, intangible assets represented 20% of total enterprise value. Today, the numbers are different; tangible assets are well over 80% of the value of the company. This dynamic presents a problem for marketers who are seeking to grow their assets. In one scenario, marketers are working to grow the value of the brand however, the CFO does not see value being created because the brand is not on the balance sheet. This creates a unique challenge for marketers and it is obstacle to corporate growth.
If brands are on the balance sheet, there would be a consistent measure for each and every constituency to evaluate where marketing dollars have been invested and if they have been invested wisely. Mr. Wanamaker would be able to approach this impact from both sides of the investment…revenue and enterprise value. For marketers, the argument changes from “if we should advertise” to “here is the potential ROI of our campaign budget”.
Based on James’ research, approximately 70% of marketing budgets are below optimal levels and 20% are over optimal levels; this prevents marketing activities from being funded properly. There are actually only about 10% of marketers that get a maximum ROI. Marketers must benchmark track their brands in order to have a greater understanding of the value being created. They must also develop ROI models that project the kind of value available through marketing. Through companies like his, these models do exist as well as through competitors or by creating their own model.
The gap between marketing efforts and financial outcomes goes back to Mr. Wanamaker’s initial dilemma. If your thought process is that you are going to waste half of your budget then, you are going to reduce your overall budget; this is a losing proposition to confront year after year. The “GAAP” became institutionalized, setting the standard for organizations and accounting firms, giving them no incentive to fix what is clearly broken. MASB is the one organization that challenged this issue head-on and continues to work on fixing it in a methodical and intelligent manner
We can sometimes lose sight of all of the progress that we have made in fostering the dialogue between fiance and those setting the standards of accountability in marketing. With regards to measuring and planning, we have come a long way but, until the standards are indeed changed, we should continue to pursue and persuade whenever possible and the best way that we can. At MASB they appreciate additional input shared by business leaders who are as intrigued as James was by this crucial subject.
The key to unlocking the value of marketing is to understand that it adds value to both brands and corporations. Although it is a tough argument, it is a worthy cause and for this reason James Gregory joined MASB.