Par-a-dox
Pronunciation: 'par-&-"däks
Function: noun
1: a tenet contrary to received opinion. 2: a statement that is seemingly contradictory or opposed to common sense and yet is perhaps true.
(From Merriam-Webster)
At the heart of branding resides a paradox. This article unravels it and examines its intricacies.
It begins by asking what and why this paradox occurs. Next, it translates branding from the realm of the theoretical into finance-based metrics. This approach illuminates the critical need for brand management, and in turn, quantifies the process into tangible results. A new metric arises from this process—Return on Customer Investment (ROCI).
In previous articles, my constant droning that top management "doesn't get branding" reached an apex (to my mind), and this article attempts to frame the discussion in terms that business leaders are most comfortable with.
So, if "financial metrics" are more palatable to organizational leaders, then let's translate branding into quantifiable terms (ROCI).
What Is This Paradox?
As noted in the Merriam-Webster definition, a paradox is an idea, thought or accepted notion that seems contrary to the truth.
In today's business environment, marketing plays a subservient role in imperatives that drive strategic trajectories. Branding, primarily viewed as a subset of marketing, receives even less notice. The business paradox, more specifically, is the link between branding and an organization's market value; nevertheless, corporate America views it as unrelated.
The brand paradox is compounded by erroneous conceptions of what marketing is and the real impact it plays in business valuation. (A quick test: why would you consider buying Nike's shoes or invest in its stock? Because its P/E ratio is 20.3—or because you have an overwhelming desire to associate with this brand identity?)
Why Does It Occur?
The prime reason for this widely accepted opinion about branding is the absolute dependence of business on financial imperatives. When considering a stock purchase or a business relationship with another public company, most leaders immediately turn to the annual report, skim the statements and calculate key ratios. In their minds-eye, the historic numbers dictate the health and proposed future trajectory of a given concern.
Unfortunately, there isn't a line item in an organization's 10K statement for either brand contributions or valuation. We all agree that Coca-Cola's or Nike's most valuable asset is its brand mark, yet we try to find a financial valuation on the income statement or balance sheet.
Translation Into Financial Terms
In graduate school, our professor introduced us to a new concept called Integrated Brand Communications (IBC). Until then, Integrated Marketing Communications was the rave among organizations as a means to unify corporate brand messages. IBC, on the other hand, quantifies media expenditures and, through a spreadsheet format, allows the leader to evaluate the return on investment. In addition, a direct link (for the first time) can be established between media expenditures and revenue growth.
This causal relationship between media placement and ROI is rarely used, due to thin resources and the breakneck speed at which most organizations move.
Another significant paradox is this: organizations use financial results as the key metric of performance, yet forego this critical analysis and squander precious resources in the process. The application of IBC provides management accountability and tangible metrics to assess its strategic branding and marketing initiatives!
An abbreviated ROCI spreadsheet, below, provides the framework in which a financial assessment can be undertaken. The essence of this exercise is to establish the available market potential, the current income flow without communications, and the ensuing outflow by pursuing an investment in brand communications.
If this methodology were followed in subsequent years, a true ROCI could be established and evaluated in quantifiable terms.
Return on Customer Investment
| Category Requirement Assumptions | Domestic | Europe | Asia |
| Base Income Flow Assumptions | $ | $ | $ |
| Scenario A: No Communications Investment | $ | $ | $ |
| Scenario B: Communications Investment | $ | $ | $ |
| ROI Calculation | $ | $ | $ |
| Incremental ROCI | $ | $ | $ |
How to Effect Change
The application of IBC shifts marketing philosophy from that of measuring awareness to one of targeting opportunity. For the first time, it forces marketing to analyze the overall category potential (market leaders per segment) and determine through a targeted effort what a focused IBC program can yield.
This process also allows the monitoring of current media spend to assess the ROI from year to year. Finally, leaders can apply accountability to marketing budgets and evaluate the effectiveness of different programs.
In a world driven by financial metrics, isn't it time to measure your marketing staff and subsequent programs?
Final Thoughts
If management hired one individual to implement IBC throughout the organization, the return on investment and increase in business opportunities would dwarf the monetary expenditure in less than one year. Even if your organization had one staff member responsible for the marketing function, the accountability realized in the short term would be dramatic.
The application of IBC not only helps to identify the what and why of your current marketing programs but also quickly enables leaders to shift investments from underperforming programs to those with more attractive returns!
