Brand has a ‘brand’ problem, due to uncertainty about its really commercial influence.
Within the industry, there’s a general lack of understanding of the role effective brand management can play in enhancing a company’s financial valuation and resilience.
This issue largely seems to stem from:
The industry’s failure to articulate value effectively. When demonstrating the return of brand and marketing initiatives, it’s easy to use vague metrics or seemingly impressive short-term data to demonstrate effectiveness.
Brand and marketing investment is classified as an operational expense rather than a capitalised asset. The global accounting standard IAS 38 disallows the capitalisation of internally generated brands for a few reasons (this may change in time, and would be a sensible adjustment).
As a company’s P&L is focused on financial year returns, there can be a bias towards performance marketing as it’s the quickest way to meet short-term revenue targets (but often not the most effective).
Chief Marketing Officers (CMOs) are incentivised and strongly encouraged, to deliver tangible results in short periods and they typically have 12–18 months to prove themselves. CMOs typically sees a new incumbent every two to three years, and therefore any consequences from a hyper-focus on driving short-term ROI are likely to be dealt with by a future CMO.
Newer, high-growth (and well-funded) businesses, such as direct-to-consumer (DTC), tend to focus on near-term sales rather than longer-term brand-building activities. This has the effect of influencing the broader marketing community to employ similar strategies.
Brand and marketing programs can be somewhat vulnerable to performance and growth demands, and historically there has been a clear divide between measurable outcomes and long-term strategies, with both being at odds with each other in a performance-driven world.
Renowned investor Warren Buffet understands the value of long-term brand building. Warren Buffett first invested in American Express (AmEx) back in 1991, acquiring a substantial position with a $300 million purchase. Today, Buffett’s stake in AmEx is valued at more than $23 billion, signifying an ownership interest of 20.4%.
“The most important thing about American Express is the brand and the customers that aspire to be associated with the brand. That brand needs to be cared for, the brand needs to be invested in, and we will continue to do so through tough times and through the good times.”
CEO of American Express, Stephen Squeri, has had numerous interactions with Warren Buffett throughout his tenure. According to Squeri, Buffett’s long-term outlook, unhindered by current circumstances, is part of what makes him a successful investor.
“I talked to him [early on in the pandemic] and said to him that, ‘Look, the reality is we’re probably not going to have a great year. I mean we could actually lose money this year.’ As we went through this, he said: ‘I don’t care about this year, and I don’t care about next year. What I care about is that you keep the brand special, that you continue to invest in the brand, and that you retain your customers.’”
Buffett invests in sustainable businesses and doesn’t get swayed by short-term peaks and valleys, enabling informed, beneficial business decisions for the long run.
To help leaders be better equipped to make more informed decisions, brand professionals, collectively, must shift the dialogue and commit to educating on the real significance and long-term value of the discipline. We must move away from the short-sighted view of ‘brand vs. performance’ to embrace ‘brand and performance’, advocate for effective measurement, and champion brand-building initiatives that ultimately contribute to stronger financial growth.