R-E-S-P-E-C-T Your Brand
For the past year I’ve been a member of the Marketing Accountability Standards Board (MASB). It’s an organization dedicated to demonstrating marketing contribution to a company’s bottom line. It brings together marketers and academics to develop standards and processes to quantify brand value. At a Forbes CMO conference co-hosted by MASB, I was fascinated by the topic for as a CMO across a number of Fortune 500 companies, I was constantly under pressure to reduce my marketing budget and deliver “savings” to offset business shortfalls. My marketing budget was always an easy place to cut. That’s because while I could show ROI and attribution for my core marketing programs, I could not show the true value of marketing spend to build brands, and how brands are a key, if not the key, driver of business performance.
MASB is not well known (yet!). But universally CMOs I’ve spoken with agree that valuing brands fully is a huge operating need. While there are existing methodologies to measure brand value they are incomplete and are not broadly adopted. There needs to be some way of measuring marketing that becomes a meaningful part of the financials. YES, that means valuing brands as part of the annual planning cycle, operating decision making and even preparation of financial statements.
There is a dawning realization that it’s essential to treat brands with much more respect. In the last few months, it has become even clearer that brands matter enormously and that you need to constantly invest in and reinvent brands to win in the market. The poster child right now for brand mismanagement is Kraft/Heinz. When Kraft/Heinz was acquired by 3G Capital in 2015, the company had $28 billion in annual revenue derived from iconic brands including Heinz ketchup, Kraft cheese, Oscar Mayer meats and Planters nuts. Once acquired, 3G decided that they could significantly reduce spending on these household names. This has proved to be disastrous. Due to the resulting slump in revenue and profits, the company had to take an impairment charge of $16.6 billion in 2019 for the loss of value for the Kraft and Oscar Mayer brands.
MASB is providing thought leadership and is helping define ISO 20671 which is a new global standard for brand evaluation. As Tony Pace, the CEO of MASB says “Accountable marketers will love ISO 20671 because to be in compliance, they will have to value their brands regularly. It’s a Golden Ticket for marketers”.
This process will start with CMOs initiating a discussion with their CFOs to get a common understanding that brands are a valuable company asset and need to be valued like buildings, inventory or any other company asset. The next step is to form a cross-functional team of marketing, finance and analytics folks and empower them to develop a brand valuation. Then, there likely will need to be an educational discussion about how brands influence consumer behavior. There are many studies that link strong brands with higher market share, customer loyalty, and decreased price sensitivity.
With an understanding that brands are important for company health, this cross-functional team should begin the detailed work of brand valuation. MASB offers a useful approach with the MASB Brand Valuation Framework. This framework provides guidance to estimate the present value of operating cash flows associated with the brand. This guidance considers category size, brand preference, pricing, distribution, and other factors. It asks: What is the value of your brand vs.a generic brand in acquiring new users, retaining existing ones and driving margins? Once the cross-functional team has developed a brand value the CMO and CFO should be presented with their calculations and a brand value mutually agreed upon. As things will continue to change with the brand and marketplace this should be updated annually.
Marketers: Consider this a wake-up call to start discussions with your finance teams on how to start valuing your brands and marketing efforts. You need to change the dialogue so marketing is not seen as a cost center but rather an essential driver of company value.
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