Braintrust Query: Are Marketers Mortgaging Their Brands' Future?
In the early 1980s, $50 billion or more was shifted by U.S. marketers from advertising to trade promotion. The reason was that IRI and Nielsen made weekly store scanner data available that showed huge spikes in weekly sales when a trade deal (e.g., end of aisle display with price off) was run. A typical result was that only 5-10 percent of lift above baseline was associated with advertising. Obviously, trade dealing was the way to go.
In 2005, in an ANA Advertiser paper, I asked marketers to consider, "Where did the baselines come from"? Why do some brands have 5-10X the baseline of their competitors? Maybe we should start focusing on the baseline as much as the spikes.
Professor Len Lodish noticed the same thing and in HBR 2007 co-authored a paper entitled, "If brands are built over years, why are they managed over quarters?" He notes that promotions lift sales but also reduce baselines and increase a brand's price sensitivity. However as brand management rotates from brand to brand, they hit their numbers with effective promotion and, by cutting the 4th quarter ad budget, leave the problem for the next team.
The assessment? Marketers are mortgaging their brand's future.
However, even if a marketer commits to measuring advertising's impact on brand value, the path forward is unclear.
Prof. Lodish calls for a dashboard approach, where baselines are re-calculated regularly so the effect of brand-building can be assessed against brand baselines and changes in price sensitivity. Unfortunately, excessive promotion will reduce the baseline making it appear that promotions are working and incorrectly concluding that a simultaneous ad campaign is reducing the baseline, leading to more promotion and less advertising -- reinforcing the exact wrong conclusion.
Another approach would be to calculate the financial value of a brand in a way that is trackable over time. However, at this point, two main ways the industry can choose to do brand valuation, BrandZ and Interbrand, produce quite different answers as shown in the following graph (2008 data) that depicts brand value (in millions) on those brands (ranked by BrandZ valuation) in common to both sets of rankings.
Especially in recessionary times, marketers are tempted into make exactly the wrong decisions by cutting advertising and minimizing sales declines through promotions and this temptation is not offset by a way of linking advertising to brand value. This will have the long-term effect of cheapening national brands and mortgaging their future.
Discussion Questions: How can one measure the impact of advertising on a brand's value? What are the main challenges of coming up with such measurements in a promotion-driven climate? To what degree are marketers mortgaging their brand's future in the downturn?