I am passionate about the business importance of marketing.  But I often find that marketers are their own worst enemies when it comes to establishing credibility in the board room.

The bottom line is that marketers need to demonstrate that they are serious about enhancing the value of the business.  Period.

None of the other metrics of marketing are relevant to a business audience until that audience recognizes that marketing cares about business success more than it cares about awareness, loyalty, engagement, community or any other of the host of metrics against which marketing measures its impact.

Few marketers realize the extent of the skepticism about their interest and ability to impact business value.  It is generally believed that marketers care about dramatic impact more than business impact.

The business press has been full of commentary over the demise of Kodak.  Probably the most trenchant observation was the one voiced by The Economist (January 18 edition - economist.com/node/21542796) about the fallacy of “competing through one’s marketing rather than taking the harder route of developing new products and businesses.”

The moral for marketing is that a brand can only be as strong as the underlying business that it supports.  The mandate for marketing is therefore to be responsible for ensuring that the offerings and service of the company are focused on the hard task of ensuring the delivery of differentiated levels of customer value, not just differentiated communications.

That is why it is so depressing to hear Jeff Hayzlett, the CMO of Kodak until last year, describe himself as “a global business celebrity” and ” a leading business expert” – if he really was such, then the company of which he was until recently a member of the executive would not be in Chapter 11.

I have no problem with marketers like Hayzlett claiming to be communications experts.  What I have a problem with is them claiming to be “business experts” when their contribution is limited to communications.  It is this fallacy that “marketing communications alone are enough to drive business success” that lies behind the folly of brand as a separate asset on the balance sheet – the misguided notion that the brand exists in isolation from the capabilities, culture and products/services that gives the brand meaning to customers.

A true business CMO like Beth Comstock at GE recognizes that the CMO’s role encompasses ALL of the dimensions of the business that impact the customer experience.  She demonstrates as keen an interest in the innovation and service delivery of GE as she does in its communications.  She recognizes that the GE brand is better thought of as multiplier on the performance of the business.

The sooner that marketers accept that their (thankless) role is to champion all aspects of customer value, not just communications, the better chance we will have of avoiding the depressing spectacle of once-great companies declining into customer obsolescence.

One of the tricky things about brand valuation is the evidence that brands act as multipliers on the performance of a business, rather than having a single, absolute value.

The research we did at BrandEconomics using the BrandAsset Valuator data from Young & Rubicam and the EVA data from Stern Stewart demonstrated that brands are more valuable in the hands of better run businesses.  Our analysis showed that increasing the brand strength of a poorly performing business lifted its valuation multiple by around 20%, but improving the brand strength of a well-performing business raised its valuation multiple by 50%.

This reinforces the point that I have made many times – that brands are an integral part of a business system, and that it does not make sense to attempt to value them independent of the other elements of that system.  The customer is paying for the entirety of the experience, not the individual elements in isolation.

Too frequently, marketers take this question at face value.  In my experience there are actually at least four questions for which the ROI question serves as a cipher:

1. “Is marketing on the same page as the rest of the business in terms of how it defines your objectives?”
2. “Can you explain why marketing matters to the business – after all, don’t good products sell themselves?”
3. “Is marketing willing to be subject to similar performance measurement standards as the other areas of the business?”
4. And, finally, “What actually is the ROI on our marketing?”

In other words, the ROI question is frequently not actually about ROI.  As illustrated above, the person asking the question is often not looking for a mathematical calculation – he/she is looking for evidence of the following things:

• ALIGNMENT: Evidence that marketing defines its mandate in terms of increasing the overall value of the business, rather than increasing brand value or customer preference
• CAUSALITY:  Explanation of how marketing adds to the value of the business
• MEASUREMENT:  Identification of the business metrics on which marketing has the greatest impact

Of course, there are times when the question “what’s the ROI on our marketing?” means exactly that.  If so, marketers need to be aware that ROI is a short term performance metric that only applies to impact (return) generated in the current time period.  So all that the ROI calculation will prove is that the specific investment being evaluated is going to generate more profit than it costs to fund – not that the entirety of marketing is value positive.

There is a clear business need for a demonstration of the contribution of marketing to business value over the longer term, and via a coherent set of activities rather than just the ROI on a single activity in isolation.  In other words, the quantification of the contribution of marketing to overall business value.

In my opinion, a good rule for marketers to follow is to assume that the ROI question is really about the business impact of marketing and to respond with evidence of alignment, causality, and the impact on key business metrics before you consider an actual ROI calculation.

Brand valuation was one of the “chapters” in my presentation to the Thunderbird MBA students yesterday so I took the opportunity to revisit the analysis of the 2011 brand value league tables from Brand Finance, Interbrand and Millward Brown, plus the new kid on the block – the European Brand Institute.

The picture is not a pretty one if you are hoping for convergence in the estimates of the value of brand value between these four providers.  First of all, only 9 brands are common between the four top 30 lists.  And only 28 brands make it onto all four top 100 lists.  The aggregate value of those 28 common brands ranges from a low of $595 billion (Brand Finance) to a high of $1,040 billion (Millward Brown) – a difference of 75%.

At the individual brand level, the differences in the valuations are even more pronounced – the minimum and maximum values differ by a factor of more than 5 for Apple; more than 4 for Shell; more than 3 McDonald’s and Nissan; and more than 2 for Google, IBM, Coca-Cola, Intel, Amazon, UPS, HSBC, Cisco, Nokia and Citibank.

This is a depressing result given that each of the agencies enjoys high standing in the market, and uses a reputable methodology for arriving at their estimates of brand value.  It is important to realize that the divergences in their estimate of brand value are not due to technical factors – they reflect differences in their assumptions about the relative importance of brands in generating future cash flow.  In other words, the differences illustrate how highly subjective the practice of brand valuation is currently.

This means that using brand valuation for the purposes of demonstrating marketing accountability is a fool’s errand.

It is ill-conceived for two reasons:

• First, it produces a number that no-one can justify
• Second, it leads to a dysfunctional situation in which marketers try to lay exclusive claim to a certain proportion of the value of the business.  This flies in the face of the reality that marketing is about leveraging the other assets of the business to present a compelling offer in the market place

A much more productive approach to demonstrating the economic significance of brands is to show how they accelerate and magnify the cash flows that the business would otherwise generate.  In other words, the focus should be on overall business valuation, not just brand valuation.

Tomorrow is another red letter day in the calendar.  Once again, I am the closing speaker for the two week marketing “winterim” course held by Thunderbird in New York.

By my count, this will be the seventh January in a row that I have presented at this event.  Add in a couple of trips to the Phoenix campus and a couple of “summerim” versions of the same course and I am well into double digits in terms of the number of times I have presented to Thunderbird MBA audiences.

What keeps me coming back?  Probably the fact that I get as much out of presenting to this audience as I give to them.  For two reasons – their internationality (is that a word?) and their curiosity.

Thunderbird attracts a uniquely diverse international student body.  If past experience is anything to go by, the 40 or so students in the room tomorrow will hail from all corners of the globe and from a wide range of industries.  They will challenge the US-centric view of the world that it is all too easy to lapse into when you are based here.

If past experience is anything to go by, they will also be a lively, curious set of minds.  They will not be shy to ask questions – not in order to gain class participation points, but because they are genuinely trying to assess whether what I present is valuable for them.

I love the experience of presenting to this type of group.  It causes me to see familiar ideas and material in a new light.

My final post of 2011.

Why is that we humans place such significance on the change of a date from 12/31/2011 to 1/1/2012?  A Vulcan would observe that it is just another day – in Excel, the difference between 40,908 and 40,909.

As humans, we are social animals and adore moments of collective celebration.  So whether it is the winter solstice, Christmas or the New Year that provides the pretext, we enjoy the opportunity for a collective experience.

I used to believe that Marketing, Finance and Accounting inhabited different universes and spoke incompatible languages. But the topic of Brand Equity has convinced me that these worlds are actually aligned.

Each discipline recognizes that the goodwill that a company/product enjoys with customers is a form of economic asset.  In Accounting, the focus is on the reporting of that asset; in Finance, the focus is on exploiting the value of that asset; and in Marketing, the focus is on the creation of the asset.

It is therefore appropriate that the each discipline has its own definition of Brand Equity that reflects its particular interest. This definition broadens from the trademark (recognized by accounting), to brand-induced customer behavior (recognized by Finance), to the potential for value due to brand preference (recognized by Marketing).

Rather than being incompatible, these definitions represent different points on a single spectrum – seeing things from this perspective provides a firm basis for the effective collaboration between the three disciplines.

It is inevitable that Marketing’s definition ill be broader because it focuses on the potential for value – whereas Finance and Accounting both require the realization of cash flow.

Successful business are always managing two core tensions:

• Between value creation for clients and value appropriation for the company (the outside/inside tension)
• Between short-term profitability and long-term profitability (the now/later tension)

The concept of brand equity is important to the effective management of both tensions.  Brand equity serves to remind managers that the extent of value that a company can appropriate is entirely determined by the amount of value it creates for customers (a fancy way of saying that “customers have the money. companies have no other source of income than the money that they persuade customers to part with”).  Absent a reminder that brand equity is a wasting asset, companies will tend to focus too heavily on cost reduction and efficiency, and insufficiently on innovation (the principal way to increase the level of brand equity).

The concept of brand equity is also vital to the trade off between profits today and profits tomorrow.  The true measure of performance is the sum of current profitability plus/minus changes in brand equity (the NPV of future profits that the brand is expected to earn).  Absent a good measure of brand equity, companies will always be tempted to “borrow from the future” to boost short-term profits (otherwise known as “milking the brand”).

The current financial accounting system biases companies in favour of short-term profits and cost reduction.  We need a robust concept of brand equity to ensure that sufficient attention is paid to nurturing the customer franchise that is the underlying source of the company’s value.

I was at a cinema yesterday with my daughter and one of the pre-movie ads was for Coca-Cola.  It was a beautifully filmed piece about the threat to the Arctic habitat of the polar bear.  It explained how concerned Coca-Cola was about this issue – and how it was turning its can white for the holiday season, and donating $2mn over 5 years…

Huh?  $2mn over 5 years?  A measly $400k a year from a company that earned $46 billion in revenue and $13 billion in net income for the 12 months to end September?  You have made an entire ad to explain how you are donating the equivalent of 0.00003% of your annual profits??  By my calculation, the donation equates to the profit that Coke earns every 16 minutes.

Coke will have spent more on the making of this ad and on the buying of the ad time that the value of the donation it is making.

Do you really think that showing me a cute picture of a polar bear will cause me to totally suspend my powers of judgment?  This type of cynical, manipulative advertising is what gets marketing a bad name.

It puts Coke in the same dubious cohort as Philip Morris and Home Depot – companies that have spent more money on campaigns to advertise their good works than on the good works themselves.