The ROI On Brand Versus The Value Of Brand

I had an email exchange recently with a friend who raised some excellent questions and views on the topic of branding that I thought I’d share here (with permission, but anonymously):

Our clients often ask how to measure the ROI of branding efforts. Maybe the question needs to be redefined. Instead of “what is the ROI of brand,” maybe it should be “what is the overall value of the brand?” Instead of asking, “How does brand create revenue?” the question might be, “How does brand contribute to my balance sheet?”

We intuitively know there’s value in branding, but the bean counters want some dollar-for-dollar ratio on their investment — and I don’t think it works like that.

Two firms of the same size could both spend $500,000 on branding but have radically different results. It hinges a lot on how they deliver the brand, the messages in their materials, the media they choose, the markets they serve, etc. But mostly, I’d say it hinges on how well they execute and deliver — especially in first-hand interactions.

Many firms have the misconception that when they complete a branding project that the work is done. “Whew, glad that’s done. Now let’s watch the money roll in.”

We show them a picture of a newborn baby and explain that it’s only the beginning. We tell them it’s like they have an infant that they will have to nurture with time, energy and money if they want to see it grow up to be a mature, responsible brand that makes positive contributions.”

My take: My friend is on the right track by reframing the brand ROI question.Subscribe Today

A brand is a lot like the servers in your data center. They’re infrastructure — they’re something you build applications upon. In and of themselves, they produce no return on their investment — you have to do something with them to generate a return.

It’s the same with brand. Brand can create awareness, expectations, and even intention…but it doesn’t close the sale. Something (or things) else does that — or, at the least, contributes to that. Which means you cannot calculate the ROI of brand. With carefully designed and executed tests, perhaps you could measure the contribution to sales that branding investments make, but few (if any) firms seem willing to take that route.

Over the past 20 years, CIOs have gotten a lot smarter about how to craft and justify their IT infrastructure investments. It took a lot of work on the part of the more successful CIOs to demonstrate how IT infrastructure enables and supports current and future business capabilities.

CMOs need to take a similar approach, and treat their investments in brand as infrastructure, and demonstrate how those investments enable the sales and marketing capabilities their firms develop. The free ride (i.e., spuriously linking brand investments to changes in sales) isn’t going to last forever.

For some great insights into the topic of brand and branding, see Jim Novo’s Marketing Productivity blog.

Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Check out more of his ideas and research on Cornerstone's Insight Vault. And don't forget to follow him on Twitter at @rshevlin.

This article was originally published on August 3, 2007. All content © 2018 by The Financial Brand and may not be reproduced by any means without permission.

Comments

  1. This is some excellent reading.

    It’s almost like the cost of branding should be thrown in as a line item under certain marketing tactics. By that I mean that, say, a press release may cost you $5,000 to release, but branding efforts to help that release breath will cost $15,000. Maybe the execs just need to know that the release is going to cost $20,000, setting branding as the foundation for your overall marketing landscape.

    It’s a theory with plenty of holes in it, but many of us marketers have gotten in big trouble trying to convince a CFO that branding in and of itself will lead to more sales.

  2. I like that, Brand = Server. Whoops, I mean Brand = Infrastructure.

    Makes a ton of sense and widely applicable.

    So then, we can explain why companies that (for example) spend millions and millions on Brand Advertising fail when the actual execution at the customer level (customer experience) does not fulfill the Brand promise. Expectations not met.

    We can also explain packaged goods advertising, where there is essentially nothing other than Brand, since the customer experience is largely out of their control after product itself. Problems there would be in Brand message – over promise then under deliver.

    And we can explain direct marketing companies, where Brand Advertising in a “mass” sense is rarely done, but the Brand message seeps through in every touchpoint, from what the contact piece looks and feels like to the tone of the service personnel to the packaging of the product itself.

    I like the idea a lot.

    So now what? Do we ask about the allocation of “Brand Spending”?

    In other words, if Brand = Infrastructure, and Infrastructure is generally a sunk cost and not variable to Sales Volume, don’t you have to start to ask questions like this…

    Brand Budget = $10 million. What percentage will I allocate to advertising, customer service training, fixing supply chain problems, product innovation, etc.?

    Sounds like a job for a Marketing person rather than a Chief Customer Officer methinks, though admittedly a different kind of Marketing person than many that are out there.

    I personally have done this kind of allocation out of Marketing budgets – paid for Customer Service expenses, paid for Engineering or IT solutions, paid for many different things that would never be considered Marketing. And the reason I did it was:

    1. There was no budget in the silo for it
    2. I knew or forecast the impact on “Brand” (though my specific focus was profitability and ROI) would be or could be significant.

    So I took money that was budgeted for “advertising” and spent it on people, training, or machines – essentially, “customer experience”.

    Most of the time, it worked out extremely well.

    See here for the one time it did not, but we learned a tremendous amount about customers:

    http://blog.jimnovo.com/2007/03/09/nice-to-new-customers/

    VERY interested in pursuing this line of thought…

  3. Jeremy Barth says:

    A few years ago I saw the CEO of Brand Finance trying to make the same point at a Direct Marketing Conference, only to be confronted with blank stares and unrelated questions.

    Those guys are the only ones I’m aware of currently working in this space, and might be worth checking-out (disclaimer: I don’t work for Brand Finance, and haven’t been a customer – I’m just impressed by their approach, and how it marries up with the argument of this post).

    http://www.brandfinance.com/

    Cheers,
    Jeremy

  4. Robert Rosenthal says:

    If we had to show a precise ROI on everything in business, we wouldn’t have work/life programs, advisory boards, corporate giving, holiday parties, and the stock options those CFOs covet. Some things in business are simply incalculable.

  5. So, if the ROI on brand investments is “incalculable” should we just invest blindly in it? Or, since some things like direct marketings efforts ARE calculable, simply attribute to the brand investments, the results that couldn’t be attributed to direct marketing investments?

    Sure, corporate giving and holiday parties don’t have a precise ROI. But I don’t see articles in Ad Age and Brandweek touting the ROI of those “investments”. Nobody (except maybe some party planners) is saying “if we invest another $1 million in the holiday party, we’ll see another $10m in incremental revenue”.

  6. I’m with Robert.

    Brand is your reputation. It’s measured in everything you do. How do you calculate the return on THAT investment? How do you calculate an ROI on accounting? HA!

    Branding is never done. Just like accounting.

    Cheers!

  7. Very true. There is no ROI on brand, but yes on branding investment. Many a times people tend to do this mistake and think brand is what they aspire for. And they are wrongly focussed. They would be better had they been thinking of incremental sales with the branding efforts.

    From Jagaur to Land Rover, from Ferrari to Volvo all are strong brands. But they are weak in themselves mainly because the companies that own these brands focussed on brands and not on actual revenue flow.

    I see a huge mistake in the part of Fiat by making the Ferrari brand strong strong while making the company’s brand low. They would have better their revenue had they used the brand name “Fiat Ferrari”. This would certainly rise the sales of all other cars they own. Then that would help them even better the original brand.

    This is one of the reason why Japanese Manufacturers are getting stronger while European counterparts are dying. Earlier focus on returns while later on brand.

    I have written a similar article sometime back.

    http://analyticsbhups.blogspot.com/2007/07/brand-dilution-is-as-important-as-brand.html

    Bhupendra

  8. I agree. It’s a brilliant thought.
    I believe that Brand Value should not be considered on a simple and primitive Return On Investment basis – how would you measure that? –
    Brand Value should rather be considered as a “Revenue Multiplier”.

    Let me explain the concept:

    Take a product. A good product.
    How many items of that product would you sell?
    If your Brand is not known, you could sell 1000 items.
    If your Brand has a bad reputation you will sell 200 items.
    If your Brand Value is highly rated in the marketplace you could sell 100,000 items.
    Or possibly 500,000 items.
    The multiplying factor of the Brand value is clear.

    Look at the iPod and the mp3 players market.

    Not to speak about the price tag you can impose on the product if your Brand Value is high.
    Look at the perfumes market and the Gucci and Versace brands in the Fashion industry.

    I want to add a couple of observations on the topic:

    1.- Brand is a very precious asset. A key asset. It normally takes 15 years to build a Brand.
    There are very few exceptions. The one which comes to mind is of course Google.
    Google built their brand in just 3-4 years. They accomplished this outstanding result with an unconventional strategy and developing a new business model.

    2.- Brand Value reflects directly on the stock value and on the company stock market capitalization.

    3.- it normally takes 15 years to build a Brand and 2 weeks to destroy it.

    4. – Brand is a hungry animal. To keep its value you need to feed it constantly. And its food is high quality products on one side, and well thought, consistent and brilliant Communications on the other.
    A brand works if you make great products – see Apple: iPod and iPhone.
    You may have a great brand but if you launch poor products you destroy your Brand Value.
    Look at what happened to Maserati in the 80’s and early 90’s with the Biturbo.
    And consider how hard it has been for Ferrari to re-launch the destroyed Maserati Brand in the last 5 years. They are now doing good, but the process has been incredibly slow.
    Consider also Microsoft with Zune and Vista, Two terrible products, worldwide flops, ridiculed everywhere on the planet. Microsoft seems they are doing whatever they can to destroy their brand. And they will succeed, in my opinion. The only reason why this hasn’t happened yet is because they enjoy a monopoly position in 2 key markets, Operating Systems and the Office suite.

    Greg Palusa, Director, Marketing Strategy & Communications, Vertygo Team.

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