• The Hard-Knock Valuation of Brand Equity Growth

    by  • October 11, 2011 • Branding, Leadership, Marketing, Strategy

    There’s not a Brand Manager that doesn’t want to build brand equity. Marketers, who work for the likes of P&G or Unilever, periodically check brand awareness and brand attributes to measure progress. For example, if 35% of folks thought Hogwash Detergent was “best at getting clothes white” in 2010, that number needs to go up in 2012 to prove an improvement in brand equity. Simple enough? Not so fast. Consider this exchange between Hogwash Detergent’s CEO and the Brand Manager I’ll call Janet.

    CEO:     “Okay Janet, you’re saying the awareness and image of Hogwash is up by a couple of points. If that’s the case why am I not seeing this on the bottom line?”

    Janet:     Aware that the impact of brand advertising can take time, Janet says, “As you know, our brand-building effort is an investment for the future. In this tough economy, we can’t expect results overnight. Eventually, sales and profit will respond.”

    CEO:     “Investing for the future is what your predecessor said five years ago. I keep waiting for this future. It’s yet to arrive.”

    Both Janet and the CEO have made good points. In the case of capital projects, every proposal includes a payout and performance is always measured against that payout. So, why shouldn’t marketing investments in brand equity require the same accountability? Having come up through brand management, I valued imagery enhancement, and as a CEO I measured and rewarded brand equity growth by agreeing with the CMO on how enhanced brand equity impacted the business. We settled on brand sales, market share and margin. Over the medium and long term, we measured and rewarded equity growth by:

    1. Articulating the sales/share/margin formulae and measuring annually. Assuming there aren’t any major uncontrollable factors such as crop failures or natural disasters, we believed that improved brand equity occurs when . . .  a. Sales are up and unit margin is flat or up, b. Market share is up and margin is flat or up, and c. Sales are flat and margin is up.
    2. Paying annual bonuses for achieving brand equity growth. Sure, there would be years where the numbers might not move or the improvement small – the bonus would also be small. But for those brand marketers who stuck around and performed, the financial rewards would be there.

    Over my 17 years with Jacobs Suchard, I witnessed the quantifiable improvement in brand equity. In Canada, Nabob Coffee’s national market share grew from 14% to 27% over those years; tonnage and unit margin increased by over 100%. On a chart, this was a sight to behold. Sadly, our performance was so good that our competitor, Kraft, made an offer for the company that the shareholders couldn’t refuse. With that purchase came the ultimate means of judging the performance of a brand – I was able to directly compare the P&L of our Nabob Coffee to out biggest competitor, Kraft’s Maxell House . . . and let me tell you, when I saw the difference in the numbers, my broad grin was also a sight to behold.

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    Formerlife: Jacobs Suchard CEO (Kraft, Nabob), Strategy Consultant. Afterlife: Palgrave Macmillan Author, Historical Novelist, Business Journalist

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