In our desire to demonstrate marketing efficiency through ROI, we are overlooking the equally important issue of how to measure the brand as an asset.
This is a shame because recent changes in the international accounting standards have given a significant boost to the notion of brands as financial assets. The guidance notes of International Financial Reporting Standard 3, which went into effect this year, suggest that intangible value (the amount by which a company's market value exceeds the value of its net assets) can be divided into five categories: technology-based assets, contract-based assets, artistic assets, customer-based assets and marketing-related assets (e.g., brands).
Although the rules apply only to acquisitions, they provide a powerful framework for thinking about intangible value in total.
This is an important topic because only 22% of the market value of the companies in the S&P 500 can be explained by the net assets on their balance sheets. The figure varies across sectors. For instance, intangible value represents 40% of the value of the average utilities company but 85% of the value of the average consumer goods company. My analysis suggests that the brand component of intangible value ranges from less than 5% for the average mining company to close to 40% of the average consumer goods company.
The key point is that, if brands are significant assets, we as marketers need to have a framework for monitoring the health of the brand asset over time. If ROI measurement is the equivalent of the "income statement" for marketing, we need to create the "balance sheet" for marketing in the form of a framework for brand equity measurement.
Brand scorecards are a useful tool in this respect. The goal of a scorecard is to track three things: first, the customer behavior metrics that marketing is aiming to impact; second, the metrics of brand equity that can be shown to be predictive of desirable changes in customer behavior; and third, the image attributes that can be shown to be predictive of desirable changes in the brand equity metrics.
This will require significant trial and error to get right, but even starting the effort will be a strong signal to senior management that marketing is serious about accountability.
Jonathan Knowles is a senior strategist with the international brand consultancy Wolff Olins. He can be reached at [email protected]