The quiet season in August is a time to think about the key objectives for your brand in the next financial year. It’s the start of the budget process ahead of agreeing the final 2008 plan in the autumn.
Going through this internal review is critical for the success of every brand and for the performance objectives of every brand manager. In most companies it forms a standard part of annual business planning. That’s as it should be.
What’s less clear is whether it really matters that marketing key performance indicators (KPIs) should be externally reported. It sounds seductive to advocate the benefits to well-run companies of publishing marketing KPIs, but I’m not convinced.
A recent IPA study is a case in point. It looked at the annual reports of the FTSE 100 and found only four companies – HSBC, BAT, Reckitt Benckiser and National Grid – had published brand or marketing measures as KPIs. Sounds scary. Sounds like 96% of top firms don’t know their household penetration from their average basket spend or their average consumption from their product preference.
Of course, this is nonsense.
Now, I can understand the logic that the exposure of external publication might help focus the organisational mind on those internal brand measures. But the really important thing is that brand metrics are used and tracked internally and inform decision-making – not that they are published externally.
It’s like the meaningless fact that very few FTSE companies have a marketing director on the main board. So what? Does that really mean that most don’t value marketing? Most plc main boards are all about long-term corporate strategy, mergers and acquisitions, governance and organisational capability, not about the detailed marketing plan. That’s not to say that brands aren’t critical to the long-term health of the business. Of course they are! It’s just that no one should confuse internal brand championship and plc board representation/ they are entirely different.
The formulation of long-term strategies for growth and generating consumer demand are core marketing competencies, but you could argue that other functions – such as human resources, sales or research and development – should be represented at board level as well. What each board needs is customer focus and consumer understanding to run through the veins of the company, not be held accountable in one functional silo. With a focus on the consumer, business results and board titles take care of themselves.
So why aren’t marketing metrics published more widely? Apart from the obvious desire of leading brands to retain as much information as they can for competitive advantage, there are other reasons for non-disclosure.
First, marketing is all about serving your consumer and there’s no evidence that shareholders are demanding more marketing information. I’m sure it would be a nice to have (smart investors will never turn data away) but no one’s pulling funds because they don’t know this week’s Nielsen share. Next is the difficulty of linking brand metrics to performance. Though KPIs are valued, they are less clearly related to overall performance than classic measures like earnings per share, free cash flow, operating profit or operating margin. And finally, they are complicated. No one really measures their business the same way. Take overall sales. You’d imagine that would be straightforward. But in all the businesses I’ve worked in, it’s been a different measure (standard cases, weight, pots, non-VAT sales, like for like, sales ex-commission etc). No wonder the City reverts to a straightforward turnover and margin analysis.
So, if there’s little external publication, what’s the best available metric? The trick is in understanding what’s behind market capitalisation. The difference between your asset value and your market cap is the intangible value bound up in future prospects for the brand. Take the recent private equity round of bidding, led by KKR in both instances, for Sainsbury’s and Boots. Both valued the businesses at about £11bn. But the Sainsbury property portfolio was valued at about £8bn (driven by its huge square footage, out of town location and land banks), implying a value of “only” £3bn in the brand. Boots’ retail estate was worth a relatively small £1bn or so, suggesting a huge differential (£10bn) in the perceived value of the brand: all to do with relative market share in its sector, competitive strength and category potential.
And finally, be careful what you wish for. Marketing metrics are important. But the best marketers also understand the intangibles: the creative spark, the emotional genius that differentiates brands and drives sales. The trap of slavishly following targets – like New Labour statistics on school performance and hospital waiting lists – means you measure some things but miss the emotional or inspiring connection to real people, their motivations and true satisfaction. Those pupils and those patients are your consumers too.v
Andrew Harrison is chief executive of the RadioCentre.
You can contact Andrew at firstname.lastname@example.org