Tuesday, January 27, 2009

Taking Full Credit When Harvesting Brands

I’ve spent the past few days at the AMA’s MPlanet conference, listening to every speaker make some form of the following statement:

Now more than ever before, we need to build and nurture our brand assets.

Presumably this is intended to mean that in these times of great economic challenge, we cannot afford to let our brand standards slip, our brand equities become cloudy, or our brand experience decay.

Fair enough. But does that mean that we should be spending money to build these brand assets, even in the face of substantial cutbacks elsewhere? Or just be cautious not to cut things that would cause an undue decline in brand strength?

This had me wondering … under what conditions would we expect to be able to “harvest” some of the investment we’ve been making? How bad would things have to get before we expected the brand to “pay us back”? At what point would a CMO stand up and advocate “harvesting brand value”?

Sure, I understand that you should always be working on building your brand, and that done right, it is always paying you back. The flow is bi-directional and fluid. But it’s also transparent, and that’s the problem.

Assets, in a financial context, are a way of storing cash value for later use. You invest in stocks as assets, with the expectation that they will appreciate and return more cash to you later. Likewise, you invest in assets like manufacturing equipment, software, or other “tools” required to produce goods or services to sell. Brands could be said to play a similar role. Yet property, plant, and equipment are depreciated over time to reflect the decline of their useful life. Stocks and bonds are liquid assets for which there are markets to quickly buy and sell them, thus establishing their value.

Brands, on the other hand, aren’t depreciated. They can become “impaired” (accounting term meaning they are worth less than you paid for them, thereby triggering a write-down), but only if you purchased them from someone else. So if we marketers are going to rationalize some of our cash spending in good times by talking about “investing” in brand “assets”, at some point we are expected by the financial types to demonstrate how that asset value is being realized back into cash. I call it, “harvesting”.

So under what circumstances would you consider harvesting some of that brand equity?

Well, for starters, if you need to raise prices without adding any incremental costs associated with new features, benefits, or other value visible to the customer. In that case, you are relying on your brand asset to carry you past the danger of customer defection. To the degree that you averted attrition related to unilateral price increases (not matched by competitors immediately), you can legitimately claim that your brand “saved” you money. This is measurable.

Likewise, when a competitor announces a new product/feature/benefit that you cannot match, thereby taking an advantage in perceived value, you rely on your customers’ relationship with your brand to carry you through until you can once again restore your value proposition to its rightful state. This too is measurable.

And finally, when some aspect of your customer experience is deficient – a poor interaction with a call center agent, an inaccurate statement, or maybe a data privacy mishap – you rely on the strength of the overall brand relationship to carry you through. The value of this too is measurable.

So in this economy, while your budget is getting cut again and again, be sure to take the necessary steps to earn credit for how you’re now “spending” some of that “asset” value you built up over time. Done correctly, it will underscore what a good steward of company resources you are, and how far-sighted you’ve been all these years.

Just be careful not to overspend that brand asset account along the way (also measurable).

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