By M. Isi Eromosele

Apart from driving sales directly, marketing is considered to be an important driver of brand equity, which itself is considered an ‘intangible asset’.

Marketing is assumed to have a benevolent impact on brand equity, and brand equity itself supports the brand through incremental leverage and increased marketing effectiveness.

Brand equity leverages marketing and media that targets all consumers in a “buy and hold” approach, even if they are not customers today, with the expectation that the stored equity will provide an added leverage when these consumers are ready to become customers.

Branding on the other hand traditionally require large amounts of investment of both time and money based on just the expectation that a positive attitude is being built towards increased brand awareness in the minds of consumers.

This has created differences in opinion between brand-managers who base their decisions on qualitative factors and the financial stakeholders of companies, who measure investments based on the expectation of a future return on this investment.

Today, a firm can no longer just amortize the premium they paid for an acquisition over a 40 year period. Instead, they have to calculate every year if the goodwill, and hence brand equity/value has eroded or been impaired, which requires the measurement of brand value and how the year’s marketing activities have affected it.

Marketing ROI as it is most commonly measured today has an Achilles heel; standard marketing-mix models only account from the short-term sales lift due to marketing.

In fact, there is a longer-term effect of marketing on sales resulting in either an improved baseline or an improved profit margin

Consistent and quality marketing effort tends to build increased awareness and premium associated with a brand, which results in increased ‘brand equity’.

Brand equity is defined as the marketing effects or outcomes that accrue to a product with its brand name as compared to the outcomes if that same product did not have the brand name.

Long-term effects of marketing can be divided into quantity premium and margin premium. Most of the variation in brands’ quantity premiums (a brand’s incremental sales relative to brands that are priced and promoted the same way) is due to marketing and advertising.

Most of the variation in brands’ margin premiums (the inverse of the absolute price elasticity) is due to distribution and product quality.

Most standard marketing-mix models and pricing and promotion analysis measure the impact of marketing and promotions via the short-term effects route.

This measures the immediate effect of brand management activities on sales and enables development of tactical strategies to enhance the performance of the brand in the short-term (3 months to 1 year out).

Apart from the short-term impact, some marketing activities have a long-term impact, which accumulates over time into an overall awareness about the product or the brand and helps to differentiate the brand from other brands.

TV is very impactful in the short-term, it is very visual and delivers the marketing message very quickly and very succinctly. Magazine on the other hand delivers it message in a more gradual manner, but in much greater detail, plus it stays around for a lot longer than TV.

So in the short-term TV could have a higher return than Magazine, but in the long run this may not necessarily be so.

The solution lies in measuring Marketing ROI as a function of both the short-term and the long-term.

Different marketing measures impact short-term and long-term brand sales differently and adjusting the marketing portfolio to maximize either the short-term or the long-term alone will be sub-optimal.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

Copyright Control © 2011 Oseme Group