By Richard Czerniawski and Mike Maloney
Wall Street measures business health based largely by
profit growth. Accordingly, companies typically measure the health of
their brands using the same yardstick. However, profit growth doesn’t
tell the whole story. Managers are skilled in managing profit growth by
cutting costs and eliminating investments. This strategy may increase
profits at the expense of the brand’s strength.
If profit growth isn’t a failsafe indicator of
brand health then what is? Here are 10 elements that serve as lead indicators
of and, ultimately, contributors to, brand health. The first nine are
quantitative indicators while the last three are qualitative in nature.
1. Category/Segment Growth — A healthy
brand participates in a growing category and/or segment of the market.
Ideally, healthy brands are drivers of new market creation, versus market
sharing (i.e., costly battles for market share).
2. Brand Sales Growth Rate — A healthy
brand displays increases in sales growth versus the previous period (except
in seasonal businesses) and the same period a year ago. A healthy brand
has a higher sales growth rate than the category or segment in which it
competes.
3. Return on Investment — The productivity
of each dollar invested in marketing generates increases in sales. This
resultant productivity exceeds the return on investment of competitive
expenditures and that of the category as a whole.
4. Brand Loyalty — We can determine
brand health by reviewing such customer behaviors as repeat purchase rates
and growth in number and size of transactions, along with key attitudinal
factors such as increases in future purchase interest.
5. Spending Mix — A healthy brand
is evidenced by spending more in equity building drivers such as product
development and advertising than in short-term sales drivers such as trade
promotions. An indication of eroding brand health is increases in the
percentage of, and growing dependence on, promotion spending.
6. Awareness — The level of “unaided”
awareness, particularly “first mentions” can be used to diagnose
brand health. A high level of unaided awareness both in the absolute and
relative to competition may indicate a healthy brand. Growth in this area
serves as a lead indicator of sales productivity. This is especially true
when coupled with strong brand linkage—the customer associating
the brand name with a meaningfully differentiated benefit.
7. Lifecycle Management — Healthy
brands are aggressively engaged in creating ways to extend the lifecycle.
As we alluded to in point 4, this is characterized by intelligent investment
in R&D. Specific R&D activities to look for: clinical studies
to establish new indications that extend patent protection and deliver
meaningful differentiation; product improvements that enhance the value
proposition for customers; line extensions that broaden the target-group.
8. Compelling Advertising — This
means advertising that has been proven not just to increase awareness
but also to build the business. Compelling advertising is determined by
an increase in top-box “purchase intent.”
9. Proven Business-Building Initiatives
— Healthy brands have an arsenal of “proven” business-building
initiatives. This spans product developments, package extensions, follow-up
or backup advertising campaigns, new promotions, etc. These initiatives
have been demonstrated to have strong business-building capabilities through
in-market testing. They don’t represent mere hope or a repetition
of what has been successful in the past but, instead, powerful tools proven
beyond doubt to productively grow sales. Healthy brands are continuously
testing new initiatives so that they can predict, and drive, growth and
return on investment more accurately. Moreover, these business-building
initiatives are available on a timely basis. They are not late to market.
10. Power Positioning — A competitive,
enduring and ownable brand positioning serves as the foundation to a healthy
brand. If any other brand were to attempt to use the same positioning,
it would be false. That’s because the brand goes beyond mere product
attributes to encompass a constellation of “values” that are
relevant to the target. These values form the basis of the brand’s
reputation and equity — the special value customers attribute to
the whole entity of the brand. It is a function of customers’ experiences
with the brand along with the marketer’s communication of its positioning
in every marketing mix element. Accordingly, the brand stands out with
compelling brand positioning values in everything it does, as opposed
to a plethora of messages, which diffuse the brand’s intended positioning.
11. Company Commitment — The health
of a brand may be gauged by determining the company’s commitment
to the brand. Is the financial role of the brand that of a cash cow or
a star? How the brand is perceived internally is a sure indicator of future
health. We can usually get a feel from this by reading annual reports
and paying close attention to marketplace activities.
12. Management Competence — One
of the key criteria used by investors for stock selection is company management.
We also need to look to the brand management team to gain a perspective
on brand health. All of us have witnessed the impact, either positive
or negative, of a change in company and brand management. A healthy brand
results from competent brand leadership. A super healthy brand grows from
exceptional brand leadership.
Richard Czerniawski and Mike Maloney can be
contacted through BDN Brand Development Network International, 430 Abbotsford
Road, Kenilworth, Illinois, 60043. Phone: (847)256-8820; Fax (847)256-8847
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