THE “BUSINESS CASE” FOR

MARKETING AND BRANDING

(or Bridging the Gap Between Marketing and Finance)

CFO Alliance
Phoenix, Arizona
February 3, 2011

Professor Richard Ettenson

Copyright 2011 Richard Ettenson

 Quick thought starter –

If asked to tick the box, how would you describe

your working relationship with the marketing
department/function in your organization?

Excellent/highly effective working relationship

Somewhat effective -- needs improvement

Very ineffective -- needs major improvement

 Executives with a strategic marketing mindset and
strong brand focus can play a key leadership role in
value creation at the world’s best companies

But there is a disconnect…

“Many senior managers have noticed a paradox in how firms
perceive marketing. On the one hand, every chief executive and
mission statement puts marketing at the very top of the agenda…
At the same time, marketing professionals, marketing
departments and marketing education are not highly regarded…
…The paradox will never be resolved until marketing professionals
learn to justify marketing strategies in relevant financial terms.”

Professor Peter Doyle

University of Warwick
Preface to “Value Based Marketing”
 The disconnect cuts both ways

There is often a fractious relationship (tension)

between marketing and finance professionals
What What
Marketing Finance
Thinks of Thinks of
Finance Marketing
In my view, marketing professionals are the
ones who must step up and demonstrate
they create business value

All too often,

we have not helped our own cause
“Actually, I preferred „Heaven‟ too, but then the marketing
guys got hold of it and changed everything around.”
The *Magic* of Marketing/Brand Strategy

The Magic Formula

for Brand Strategy
 I remain a firm believer that executives with
a strategic marketing mindset and strong
brand focus can play a key leadership role in
value creation at the world’s best companies

In doing so, they must demonstrate the

“business impact” strategic marketing and
branding can deliver to the organization
 Good news –

There is evidence (on multiple levels) that

marketing and branding add to business value
 Let’s Go Back to a
Classic Business Quote

 “Business has two basic functions -- marketing and

innovation. Marketing and innovation produce results;
all the rest are costs”
Peter Drucker 1954

What Are Some “Results” That Marketing and

Innovation Might Produce in Today’s Hyper-
Competitive Global Business Environment?
 Another More Recent Quote
Provides Further Insight

“In the past few decades there has been a dramatic shift,
a transformation, in what economists call the production
function of companies – the major assets that create value
and growth. Intangibles are fast becoming substitutes for
physical assets”
Baruch Lev, Accounting and
Finance Professor, NYU
 The business impact of
marketing and branding

Multiple levels of evidence –

aggregate market data
industry sector data
company performance
 Here Are Some of the “Results” Drucker
Might Have Been Referring To
S&P 500 – Market to Book Ratio (12/82 to 06/09)

8.0

7.0

6.0

5.0

4.0

3.0

Market/Book Ratio of 4.6 -- the tangible assets on the

balance sheets of the companies comprising the S&P
2.0

1.0
500 account for only 22% of their overall market value.

0.0

Source: J. Knowles, Type 2 Consulting

 This is a global phenomena
(2010 data of 12,000+ companies with market cap of $100M+)

Source: J. Knowles, Type 2 Consulting

 The business impact of
marketing and branding

Multiple levels of evidence –

industry sectors
Source: J. Knowles, Type 2 Consulting
 Think of Your Own organizations –
Where Does the Intangible Value Lie?

IASB ASSET CLASSES UNDERLYING INTELLECTUAL PROPERTY

Technology-based Patents, software, trade secrets

Contract-based Exploitation rights, servicing contracts

Marketing-related Trademarks, trade dress, URLs

Customer-related Customer lists, order backlogs, market research

Artistic Copyright
 The business impact of
marketing and branding

Multiple levels of evidence –

company performance
 The Business Impact of Strong Brands

Research on business pact of brands –

based on integrating Stern Stewart's
database on corporate performance with High

Young & Rubicam’s brand equity

database 1.2 2.9

Brand Strength
Analysis of the relative valuation of 140
companies over a 10 year period
Companies allocated to quadrants
based on whether they had above- or 1.0 1.9
below-median performance on
profitability and brand strength Low
Low High
Profitability (EVA)

Demonstrates that brand strength is a magnifier

of underlying business performance
Source: J. Knowles, Type 2 Consulting
 Products versus Brands
Further Company Specific Evidence –
Two Illuminating Examples of
the Impact of Strong “Brand Equity”

Tea
&
Toyotas
AC NIELSEN: Analysis of Category Sales For
Bagged (Non-Specialty) Tea
National Brands
Market Share
2.70/lb 81%

17% Price
Premium
4+x share

Minor (Store) Brands

2.23/lb

19%
 Separated At Birth:
Twin Products Meet Separate Fates
TOYOTA COROLLA Sales in 2000,
thousands of
15,223 14,973
250 units
3,556 11,417
230

CHEVROLET PRIZM
15,315 14,315
1,000
4,360 9,955

52

MSRP Rebate Net Price Depre- Trade-in

ciation value
Difference per vehicle 658 1,462
Key business impact question
re: brand equity:

-- What is the Real Asset?

 Brand Equity – What is the Real Asset?
 “A brand is not an asset. Brand loyalty is the asset.
Without the loyalty of its customers, a brand is merely
a trademark, an ownable, identifiable symbol with
little value. With the loyalty of its customers, a brand
is more than a trademark. A trademark identifies a
product, service, or corporation. A brand identifies a
promise. A strong brand is a trustworthy, relevant,
distinctive promise. It is more than a trademark. It is
a trustmark of enormous value. Creating and
increasing brand loyalty results in a corresponding
increase in the value of the trustmark.”
Light and Morgan
Brand Equity -- What is the “Real” Asset?

Another Way to Think

About It:
A strong brand(s) is
your organization’s
strategic bridge to
future earnings
 Brand Equity -- What is the “Real” Asset?

Yet Another Way to

Think About It: Brand
Equity
Brand equity is a
reservoir of cash flow
earned, but not yet
released, to the
income statement…
 Marketing and finance –
reconcilable differences?

Need to find common ground

 We use the same terms
to mean different things

Marketing Perspective Finance Perspective

“Value” and “equity” are “Value” and “equity” are defined

defined from the customer from the shareholder
perspective perspective

Value is the ratio of perceived Value is revenue minus

benefit to price economic costs

Equity is defined in terms Equity is defined in terms

of satisfied customers of shareholder value

Focus is on ways to enhance Focus is on ways to enhance

customer utility business efficiency

Goal is to create preference Goal is to generate profit

 Effective business performance is based
on the integration of the marketing/branding
and financial perspectives on value and value creation

And there is common ground

 Strong Brands Finance
Deliver Equivalent

Our company can

command and sustain a
Profitability Preference price premium for its
products (or choose to
price at parity and enjoy
higher growth)

Our company can grow

Extensions / faster than the industry
Growth Permission average because we have
earned the trust of our
customers

Our company’s earnings

Loyalty will be more stable than
Risk the industry average
because of lower
“defection”
 Creating more
effective dialogue
 The Marketing / Brand Value Chain (M/BVC)

Marketing Brand Brand Customer Business

Activity Image Equity Behavior Impact

The marketing What customers The extent to The extent of Incremental

activities to think of your which your the change in cash flow
promote your brand relative to brand image customer resulting from
products and competitors creates a behavior due to changes in
services preference for this preference customer
your brand behavior

You Can Reach the Promised Land –

It is a Journey
 Image, Equity, and Behavior Metrics

BRAND BRAND CUSTOMER

IMAGE EQUITY BEHAVIOR
What customers think The extent to which The extent to which
of your brand relative your brand image your brand image
to its competitors creates a preference creates a preference
for your brand for your brand
• Image attributes
• Beliefs • Relevant • Purchase frequency
• Feelings differentiation • Price premium
• Associations • Willingness to • Reorder rate
• Awareness recommend • Share of wallet
• Worth paying a • Cross-sell ratio
premium for
• Perceived quality
• Performance/affinity
indices
Small group exercise –
 Think about your current working relationship with
the marketing function:

When you did work together effectively – what

elements made it effective? Specific examples?

When the relationship was less than effective – what

areas caused tension and need improvement?
Specific examples?

What did you hear today that may help improve the
dialogue and working effectiveness? Specific
examples? How to improve? Next steps?