520 The Marketing Book
strategies, as a number of common issues can
be more simply dealt with.
The nature of brands has been dealt with
separately in Chapter 15 and so this section
focuses on the financial control issues in a
brand-led strategy. If a competitive strategy
which is based on brands is to be successful, the
brand must enable the business to earn a super
profit on its more tangible assets, i.e. the brand
becomes an intangible asset of the business.
However, brand assets can achieve this super
profit in different ways, and these different
ways require appropriately tailored control
processes and performance measures.
A strong brand may enable the branded
‘product’ to be sold at a higher price than its
unbranded equivalent. Alternatively, an
equally strong brand could be sold at the same
price as other products, but command a sig-
nificantly greater share of the market on a
consistent basis. A third branding positioning
would be to combine a slightly higher price
together with a higher market share. It is
important that the control process understands
and focuses on the specific brand strategy.
There are a number of stages involved in
developing, and then maintaining, a brand as
an asset. Some success, although not neces-
sarily uniform success, must be achieved at
each stage if the brand is to have a sustainable
super profit earning capability. As discussed
earlier and elsewhere in the book, marketing
has developed specific effectiveness measures
for each element in the brand building process
(e.g. awareness creation, propensity to pur-
chase, ability to purchase such as distribution,
trial rates, repeat purchase incidence, and levels
of regular usage).
The financial control challenge is to
develop a financial model which can incorp-
orate these non-financial effectiveness meas-
ures into a comprehensive brand evaluation
process. Several companies are now using such
overall brand evaluation models as key ele-
ments in evaluating and controlling their brand
marketing expenditures. These models are
based on the discounted cash flows which are
predicted to be generated by the brand and an
assessment of the strength of the brand, which
is used to determine the discount rate applied
to the cash flows (the stronger the brand, the
lower the discount rate applied). It is clear that
many judgements must be used to arrive at the
brand value, but this is not the point. This is a
broad evaluation process, and therefore it is the
movements and trend in the brand attributes
(the true brand strength indicators) and hence
in the value which is important, rather than the
absolute value at any point in time.
This type of model can be used to evaluate
proposed incremental development expendi-
ture on the brand and to ascertain the required
level of maintenance expenditure (that level
which should keep the brand strength score at
its current level). However, these evaluations
are still not simple because the relationship
between marketing expenditure and its effect-
iveness is by no means linear. As can be seen
from Figure 20.7, there is a level of marketing
expenditure which produces very effective
returns but, if the company spends significantly
more or less than this amount, the financial
return can be dramatically reduced.
If too little marketing support is provided
(area 1 in Figure 20.7), this low level of
marketing expenditure is likely to be wasted.
The effectiveness may be very low due to the
relatively higher level of competitive expendi-
ture or other general marketing activity which
drowns out the company’s specific marketing
message (sometimes referred to as ‘noise’ in the
system). Thus, this adds a further complication
in that the effectiveness of one company’s
marketing expenditure is affected by the mar-
keting activities of its competitors. Conse-
quently, marketing expenditure planning must
be done against assumptions and expectations
regarding the expenditures of competitors, as is
discussed below.
At the other end of Figure 20.7, marketing
expenditure is also likely to be unproductive,
but this time it is because the law of diminish-
ing returns has set in. If the level of marketing
expenditure was reduced slightly, the overall