Wednesday, October 29, 2008

Is Measuring Brand Value Worth the Effort?

Hello, blogosphere! Did you miss me?

Probably not, but, whatever. Launch of the new Raab Guide to Demand Generation Systems is largely complete, so I can now find some time for this blog. Also, the publisher of my MPM Toolkit book seems to have settled on a January publication date, so I need to pay more attention to this side of the industry.

I’ll ease back into this blog with a survey on brand value from the Association of National Advertisers (ANA) and Interbrand consultancy. The press release is available here .

Key findings of the survey were that 55% of senior marketers “lack a quantitative understanding of brand value” and that 64% said “brands do not influence decisions made at their organizations.” Bear in mind that these are ANA members, who tend to be large media consumers. If they can’t measure or use brand value, nobody can.

Taken together, these two figures mean that brands don’t influence decisions even at some companies which are able to measure their value. The survey explored this a bit, and found that at companies where brands lack influence, the most common reason (cited by 51%) was that “incentives do not support importance of brand”. In other words, if I interpret that correctly, people are not rewarded for increasing brand value—so they don’t work to do that, even if they do have the ability to measure it. The next most common reason, at 49%, was the more expected “inability to prove brand’s financial benefit”. Other answers ranked at 40% or below.

This wouldn’t matter to anyone who's not a brand valuation consultant, except for one thing: 80% of the responders report that “demands from the C-suite and boardroom were steadily increasing” to demonstrate that branding initiatives add profit. That means even existing branding budgets are at risk.

If you accept, as I do, that branding programs do add value, then not being able to justify them is a serious problem. But there’s a difference between knowing something has value and knowing what that value is. As I’ve pointed out prevously and the good people at MarketingNPV recently wrote at more length, different brand valuation methodologies give widely varying results, and even the same methodology gives different results from year to year.

This has important practical implications: specifically, brand measurements are not precise enough to guide tactical decisions. Yet that is exactly what the ANA survey says marketers want: 93% felt a quantified understanding would allow “more focused investment in marketing” and 82% felt it would provide “an opportunity to custom out underperforming initiatives”. Frankly, I’d say those are unrealistic expectations.

The MarketingNPV paper argues that marketers should not attempt to measure brand value by itself, and instead focus on “quantifying the impact of marketing on cash flows”. That may seem like begging the question: after all, the value of a brand is precisely its impact on future cash flows. But I think of brand value as a residual factor which accounts for future cash flows that cannot be attributed to more direct influences such as promotions, distribution and pricing. So it does make sense to say, first let’s do a better job of predicting the impact on cash flows of those directly measurable items. Once we've taken that as far as we can--and I'd say most firms are nowhere near--then we can spend energy on brand value to explain the rest.