Tuesday, January 19, 2010

The Cost of NOT Branding

It’s a simple formula: recession requires more tactical spending. This year’s budget = + online spend + social activity + lead generation campaigns – brand investment.

When the dollars get tight, spend shifts to more tangible, less expensive marketing programs with the promise of shorter-term returns (or at least lower costs). Not that there’s anything wrong with saving a few bucks wherever you can get the job done more efficiently. But when saving money becomes the goal instead of a guideline, something big always suffers… usually the brand.

While this is an important problem within the B2C community, it is absolutely URGENT within the B2B community. B2B marketers in large numbers have seen their marketing resources cut back dramatically for anything that isn’t expected to generate significant near-term flows of qualified sales leads. Why? Because absent good metrics to connect brand or longer-term asset development to actual financial value, these things were seen as strategic luxuries that could be postponed.

If I were a CFO looking for strategies to free up cash, I might have reached the same conclusion. Unless my marketing team could explain to me the cost of NOT investing in brand.

Here’s an example… A B2B enterprise technology player (Company X) dropped all marketing programs except those that A) specifically promoted product advantages or B) generated suitable numbers of qualified leads to offset the cost. After a few months, leads were on target, but the sales closing cycle was creeping up. What was originally a 6 to 9 month cycle was becoming 9 to 12 months. Further analysis and research amongst prospects and customers showed that indeed some of this delay was being caused by the general economic uncertainty and the need for buyers to rationalize their purchases internally with more people. But fully 45 days of this extended cycle (estimated by sales managers) was happening because the ultimate decision-makers weren’t sufficiently familiar with the strength of Company X’s product/service offering. (They thought Company X made small consumer electronics, and were not a serious player in enterprise tech.) So the sales team had to make repeated visits and presentations just to work their way into the game to compete on feature/function/price/value.

In this case, the question of the cost of NOT branding could be measured by the increased cost of direct sales associated with NOT branding. Specifically, if Company X measures the sales cost/dollar of contribution margin amongst accounts with strong brand consideration versus those with little-to-no brand perceptions, they should expect to see at least a 50% difference (nine months of effort vs. six), half of which would be attributable to low levels of brand consideration. Multiply that by the percentage of prospects in the addressable market with low levels of brand perception, and you can quickly derive a rough approximation of the cost of NOT branding, expressed either in terms of additional sales headcount required to compensate for lack of branding, or in terms of sales opportunity cost to compensate for an underdeveloped brand. Either way, an imminently measurable problem that would better illuminate the business case for investing in brand development.

There are many other ways to measure the cost of NOT branding, including relative margin realized and strategic segment penetration, amongst others. The right approach for you will depend upon your organizations key business goals.

Now I’m NOT advocating branding as a solution in every circumstance. Nor am I a proponent of the idea that marketing should generally be spending more money versus less. But as a tireless advocate for marketing effectiveness and efficiency, I think we too often fail to examine the business case for NOT doing something as a means of pushing past cultural and political obstacles in our management teams. Remember, there are always two options… DO something, and NOT do something. Each are definitive choices requiring their own payback analysis.

Pat LaPointe is Managing Partner at MarketingNPV – specialty advisors on measuring payback on marketing investments, and publishers of MarketingNPV Journal available online free at www.MarketingNPV.com.

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