The Value of Marketing

What Al Ries and Jack Trout said in their 1972 article, “The Positioning Era Cometh,” is still applicable today: “To succeed in our overcommunicated society, a company must create a ‘position’ in the prospect’s mind.” Creating a position is probably the most important thing marketers do to help companies succeed.

Yet as marketers we often find ourselves on the defensive and having to prove that what we do adds value. For example, CHIEF MARKETER just launched MarketingROI, a biweekly newsletter on performance measurement. Why? As See Oracle’s vice president for global marketing, Todd Forsythe, recently told CHIEF MARKETER, marketers are under “tremendous pressure to produce results, and produce them immediately.” (See “Survey Shows Marketers Want Analytics.”)

Nonetheless, your contribution to your company’s value is substantial if you have successfully positioned your company. One simple (but admittedly unscientific) way to determine the value of marketing is to determine how a company values its position, which is created and maintained by marketing. Knowing how much a company would be willing to sell this asset for is indicative of how it values marketing, I believe.

I contacted two leading global companies and three leading Inc. 500 companies and asked the same questions: What is your leadership position worth to you? If you could sell it to a competitor, what would be your price?

You know that your company is well positioned when your name becomes a verb, such as in, “Xerox a copy for me.” Today the $15.7 billion company does more than sell copiers; it helps businesses deploy “Smarter Document ManagementSM strategies and find better ways to work.

“Earning that recognition as a market leader is neither easy to do nor easy to keep,” says Michael Mac Donald, president of Xerox Global Accounts and Marketing Operations. This top positioning, along with being viewed as the “top company to trust,” he explains, is “invaluable.”

Adds Mac Donald, “Not only is it impossible to put a price tag on leadership, it is unthinkable to sell or cede it to a competitor.”

Whether you’re in northern New Jersey or Northern Ireland, if you say, “Networks…” to someone as though you’re on “$20,000 Dollar Pyramid” chances are they’ll reply by saying, “Nortel.” It’s no wonder; the company has been in the telecomm business for more than 100 years. Nortel carefully tracks the asset value of its brand and sets goals as to what that value should be in both the short and long term.

“There is substantial empirical evidence which shows that a strong brand can account for 15% or more of the market value of a company,” says Wes Durow, global brand communication leader at Nortel Networks. “We see that the value of a strong brand can be worth two to three times annual sales.” Based on 2004 sales the Nortel brand’s worth would be between $19.6 billion and $29.4 billion.

To get an objective view of the value of being positioned as the leader in smaller firms I contacted Brett Prager, managing director at Theo Capital, a Short Hills, NJ-based private equity firm whose principals have completed more than 30 investments since 1988.

“Market leadership is an important driver for us in considering an acquisition candidate,” Prager says. “Often market leadership translates into protected cash flow–protected in the sense that it is harder for competitors to take lucrative business away.”

I chose Inc. 500 companies because they are some of the fastest-growing in the nation, which could be indicative of good positioning. Several, like Microsoft and Oracle, have become leading global brands.

“Clearly, being the market leader is extremely valuable,” says Doug Fowler, president of SpectorSoft Corp., which provides Internet monitoring and surveillance software. “About the only circumstance I can think of where we would willingly give that up would be in an outright sale of our company.”

Welocalize translates software, e-business applications, Websites, documentation, and other electronic content and business systems into foreign languages. E. Smith Yewell, the company’s CEO, feels that market leadership is an “essential ingredient” in long-term success. “Building a position of market leadership is one of the most important things a company should do to create value,” he says. “Thus, the value of this asset would certainly be in the two-times-revenue range.” According to the company’s 2004 revenue figure, that would be about $19.5 million.

Tom Lueker, chief marketing officer/cofounder of WebSurveyor Corp., is a self-described fan of Ries and Trout’s work on positioning. “I think it’s everything,” he says of positioning.

WebSurveyor, a provider of online survey software and services, was not the first in its market. The company followed Ries’s advice and found something that it could be first in, by using an application service provider model. Today, says Lueker, “we’re number one in online surveys for a midmarket product for people who want to do it themselves and who want service.” Now that’s positioning.

Lueker says that the company positioned as the leader gets about 50% of the market, number two gets 25%, number three gets 12.5%, and the rest of the competitors split the remaining 12.5%. “I would never sell [WebSurveyor’s number-one position] unless I was selling the company, because that is the company,” he says.

What’s my point? Fortune 500 or Inc. 500, positioning adds value to a company. Marketers are responsible for positioning, and if companies value it, they should value the practice and process that creates and maintains it.

As marketers, we are not exempt from having to prove our value. But boards and CEOs must understand that marketing involves creating or changing people’s opinions and attitudes. We’re not planting marigolds; we’re planting ideas in minds. This takes time. Are we hurting ourselves by focusing on immediate results? Are we sacrificing long-term positioning success for short-term gains? Only time will tell.

Wayne E. Pollard is the author of ”Minds Before Market Share” and the president of Hunter-Pollard, a management consulting firm based in South Orange, NJ. He can be reached at [email protected].