James R. Gregory has spent 30 years helping companies maximize the value of their brand by developing tools to measure brand power. In “Driving Brand Equity and Accountability,” a new booklet written for the Association of National Advertisers, Gregory explains how to link brand equity to a company’s stock performance and other key indicators. He also explains “the CMO’s dilemma” regarding bringing financial accountability to brands.
Gregory is founder/CEO of CoreBrand, a New York-based brand strategy and communications company that tracks 47 industries. Its clients have included Cisco Systems, Delphi, and AT&T. Gregory spoke recently with CHIEF MARKETER’s Andrew Grossman:
CHIEF MARKETER: What is new for marketers in this booklet?
Gregory: Most branding efforts are made to focus on the revenue side. If you launch a campaign you generally don’t do it except for the purpose of building revenue. You’re promoting a product and that type of thing. We’re able to identify how building a brand creates increased revenues, and we’re able to [measure] a return on investments to our efforts.
CHIEF MARKETER: How is this different than other methods of measuring the ROI of brand equity?
Gregory: When you build a brand it requires a lot more than just commitment. If you did it right, you built a business practice and aligned that with the culture and behavior of the company… The result should be measurable.
There are two financial impacts. One is the traditional way of thinking about it, the impact on revenue. The other is the direct impact between brand importance and stock performance. What we have always been focused on the past 15 years is that dashboard measurement between brand image and stock performance because we can readily identify the power of brand equity, the value of that.
Thinking about the stock market, within certain parameters the [price-to-earnings] ratio is somewhat similar by industry. We love to see this premium effect created by the brand on the stock side, but if you’re measuring the revenue side it’s very complicated.
We actually have a chart; it’s a standard discounted cash flow analysis. It evaluates cash inflow and outflow resulting from a change in market share, and we’re able to demonstrate return on investment for different scenarios of spending.
CHIEF MARKETER: In your book, you talk about “the CMO’s dilemma.” What is that?
Gregory: It’s about reporting to the CEO in terms of the value being created by a corporation. The only reason there is a CMO position is the CEO wants more accountability. They always had a VP of marketing, always had creative alternatives they were able to tap into.
The issue is they want someone to report to them on their level. Their level is all about accountability, all about measuring value the way anyone else asking for money from senior management–the CFO, anyone who would go in [the CEO’s office] with a business plan. [CMOs] can become on an equal path with other divisions and business units coming in and looking for money. It’s been in the past couple of decades that CEOs have been demanding more in terms of accountability.
CHIEF MARKETER: Is this a reaction to CEOs wanting more-specific data on linking investments in branding to return on investment?
Gregory: It’s not a reaction; it’s part of our process. We were involved in this long before it became fashionable, and we’ve had this consistent way of looking at brands, at how values have been created, for 15 years. It’s about getting answers to the needs of CMOs. Why is it now getting more attention? Well, marketers are not traditionally, commonly folks who are educated on financial aspects of brand building, and it’s been a completely overlooked area, and they don’t want to do things they don’t feel comfortable with. When we sell this stuff to companies, it’s not the CEOs and CFOs we have problems with–they get it. It’s educating the [marketing] community on how this all works. That’s where we spend our time.
CHIEF MARKETER: Can companies handle the benchmarking work necessary to determine the brand value themselves?
Gregory: They can do it themselves, but very few companies do good consistent benchmark tracking. [The booklet describes] what is the right process for measuring this, what are some of the things I can do to be able to get a sense to go about building a model like this?
CHIEF MARKETER: What don’t most people understand about measuring their brand’s asset value?
Gregory: It’s all about quantifying the value you’re creating, being able to project out the future, what-if scenarios: What if I spend more, what does that do for the brand? What if I spend less, what does that do for the brand? How does that affect return on investment, how does that affect value to the company?
The key to this is that for the first time the whole picture is unveiled. It’s the first time where you say there is value being created in a number of ways in your company and your organization.