522 The Marketing Book
designed to maintain the brand at its current
position. The required level of maintenance
marketing expenditure should still be assessed
by reference to competitive levels of expendi-
ture; the objective may well be to achieve an
SOV/SOM ratio of 1. However, this required
expenditure must still be financially justified
by evaluating the sustainable level of cash
inflows which can be generated by maintain-
ing the brand.
There is potentially one brand in any
market which may be able to sustain its current
market share while spending proportionately
less on marketing support than its share of
market (i.e. having an SOV/SOM ratio < 1).
This is the brand with the dominant market
share, because such a brand often achieves
economies of scale in its marketing expenditure
which are not available to its smaller com-
petitors. Thus, due to its dominant market
share, it can still significantly outspend, in
absolute terms, all of its competitors, while
spending proportionately below its market
share. If it actually spent at its proportionate
rate it would find itself in area 3 of Figure 20.7,
i.e. in the area of rapidly diminishing returns.
Notwithstanding this powerful sustainable
competitive advantage, in most cases, an SOV/
SOM ratio below 1 indicates that the brand is
not being properly maintained and will, in the
long term, decline in strength. This may be the
appropriate strategy if the brand and/or the
market are coming to the end of their life cycles.
However, one particular strength of brands is
that it is often possible to transfer the brand
attributes to another product before the decline
of the original product has irretrievably dam-
aged the brand attributes. If the brand is
successfully transferred to another product, the
economic life of the brand has clearly been
extended. This transfer of brand attributes
should be financially compared with the alter-
native strategy of developing a new brand
specifically designed for the new product.
Similar financial justifications should be done
for all brand umbrella and brand extension
strategies, as they involve significant risks
which must be taken into account, as well as
reducing the brand investment needed for
developing a new independent brand.Customer-led strategies
As stated above, brands can be built around
products or customers, but a customer-based
brand is designed to encourage existing loyal
customers to try new products which are
launched under the same brand (e.g. retailer
brands such as St Michael, Tesco and
Sainsbury).
Thus, any customer-led strategy is, by
definition, built around the existing customers
of the business. A critical question for evaluat-
ing such a growth strategy is therefore ‘which
customers should form the basis for future
growth?’. If the organization has an overall
objective of creating shareholder value, the
obvious answer is to base the strategy around
those customer groups from which the com-
pany can generate sustainable super profits.
This requires a strategically oriented, long-
term customer account profitability (CAP) anal-
ysis to be carried out. This CAP analysis should
indicate the relative profitability of different
groups of customers, but it should not be used
as an attempt to apportion the net profit of the
business among the different customers.
Indeed, apportioning (or ‘spreading’) costs
among customers can destroy the main benefits
from the CAP analysis. The analysis should
support important strategic decisions regarding
which customer segments should be invested
in, etc. Thus, the resulting information must be
relevant to these decisions and this is not
achieved if a large proportion of indirect costs
are apportioned to these customers.
The key phrase is direct attributable cost-
ing, where the real cost drivers for each major
customer-related cost are identified. These cost
drivers are what causes the cost to be incurred
by the business and what makes the level of the
cost change. If they are identified, this will