Budgeting For Short And Long Term Brand Building

Ken FavaroNovember 27, 20173674 min

Once again budgeting season is upon us, a time of year that most brand managers dread. When you ask them to select their favorite management process, budgeting rarely makes even the top 5. That’s because most brand managers experience annual budgeting as a company-centric exercise in financial engineering that prioritizes next year’s sales and margins over longer-term brand building. It seems almost too quaint to suggest that it could be any other way. After all, in the real world, don’t we have to produce results next year if we want the license to continue building brands for the longer-term?

But what if we could make the money we spend on next year the same as the money we would spend on longer-term brand-building, and vice versa? None of us in the right mind would refuse that. So why aren’t most companies already budgeting that way? Because they aren’t asking the right questions and they lack the data and analytics to answer those questions in the right way.

To make next year’s budget support both the short and long term for your brand, you must be able to answer two questions:

  • How large is my pool of “receptive consumers” – those who are receptive to marketing investment in my brand?
  • What form of investment in my brand – product, A&P, pricing, distribution, other – are they most receptive to?

The answers to these questions will tell you where increasing investment will result in both a big, profitable volume response and a sizeable bump up in your longer-term brand equity. Just as important, they’ll tell you where and how you are overinvesting in your brand. This is the key to unlocking funds for increasing investment without having to trade-off next year’s margin for more growth.

In my experience, the spend per capita across a brand’s total addressable consumer base rarely varies as much as it should. Nor does the level and nature of investment in its marketing mix vary as much as it should by geography, demographic, and competitive set. This is partly because few brand managers can parse their market between consumers who are receptive to marketing investment and those who are not, with enough precision.

Receptive consumers are current, former, or non-consumers who have a strong affinity for your brand because they rank it high on uniqueness, meaning, and regard. Consideration is not enough; there has to be a sufficient level of emotional affinity for your brand before marketing investment will result in both a positive purchasing and equity response. You need to understand these people with as much precision as you can: who they are demographically, where they are geographically, and how they place your brand competitively. This means by generation, socioeconomic group, ethnicity, zip code, direct and indirect competitive set, or by whatever is most relevant to your brand. Moreover, you need to understand how effective each element of your marketing mix is – and would be – with your most receptive consumers, as well as their purchase frequency and consumption levels. The sharper you can be, the more you’ll spot where you are underinvested and the reverse.

For example, using data produced by BERA Brand Management on a dozen brands owned by one company, I was able to find three brands materially underinvested and another three seriously overinvested. The number of receptive consumers ranged from just under six million – or about 4% of the addressable market – for one brand to almost 35 million and 25%, respectively, for another. The profit potential per dollar of marketing investment for the highest brand is three times the lowest brand’s, which is far greater than the spread in marketing dollars between those same brands. I also found as much – if not more – of a difference between the variation of return-on-marketing potential and spread of marketing spend within the individual brands – by demo, zip code, and competitive set – as I did across them.

This is not a sign of bad management but of ever-changing market conditions, and it is very good news for both brand managers and financial managers. It means that both brand volume and equity growth could be enhanced across the board with virtually no net increase in spend and no loss of margin. This is not an unusual situation. I see it time and again.

But it doesn’t have to be this way. When financial managers have nothing to go on but last year’s numbers, budgeting for next year inevitably becomes a soulless process of “last year, plus or minus.” Financial managers know this isn’t ideal, but they can’t change it without the help of brand managers. And brand managers can help in three ways: one, by acknowledging that because market conditions are constantly evolving, there are always opportunities to fix both under- and over-investment in their brands; two, by asking the right two questions; and three, by bringing consumer-centric, forward-looking data – with precision – to those questions. That’s how you turn a financial budgeting process into one that actively reflects both short-term financial realities and longer-term brand-building imperatives.

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