8: Customer-First Planning--From the Outside In
The author asserts that most marketing departments have been focused on tactical decisions (managing campaigns) rather than strategic goals (achieving a long-term goal in terms of revenue of brand equity) - which is largely in part to marketing being regarded as a service or support function, a means by which the goals of other business units are achieved, rather than a unit with its own goals to achieve.
THE HISTORICAL BASE FOR CURRENT CUSTOMER-BRAND RELATIONSHIP MEASUREMENT
Historically, marketing began in the industrial period, when buyers were eager to obtain goods, and all a marketer needed to do was announce their availability With the suppliers in control, they could (and did) adopt a dismissive, take-it-or-leave-it attitude toward customers, from whom they held little regard. Even as competition entered the market, it was generally outstripped by demand, and there were sufficient uncontested markets that competitors faced little head-to-head competition for the same market segments.
It's also noted that, during the same era, the science of psychology was being developed. Experiments performed by Pavlov and Skinner developed theories of behavior based on animals (dogs and pigeons) that were assumed to be transferrable to humans: a stimulus-response model in which a customer could be "conditioned" by repetition to behave in a predictable manner.
This was also an age of mass communication, in which people received information from very few channels (newspaper, radio, television) and rarely interacted with individuals outside their geographic area. As such, the marketer had long been in control of the system: determining what information was sent, who would receive it, and how it would reach them - and there were few instances in which other "forces" could have an impact on the customers.
Naturally, all of this has changed in recent years.
THREE CHALLENGES
In recent years, marketers have been faced with three key challenges: data, time, and the accountibility.
The author notes technological advances, such as scanner-panel data in supermarkets, as a turning point in the ability to directly monitor consumer behavior - this gave many manufacturers the ability to track a specific purchase to a specific household, and thereby connect expenditures on marketing to that household directly with the results. (EN: it is even more pronounced on the Internet, where every action can be tracked in minute detail.)
The author suggests that the ability to measure the impact of activities over time has also been lacking until recently, though his argument is a bit more vague and oblique: the suggestion is that marketers depended on short-term promotional goals in which an advertising message was presumed to create an immediate response that was soon after forgotten, and that brand marketing has now led to the need to measure relationships over the lifetime of a customer.
In terms of accountability, marketing has long assumed that the only thing that influenced consumer behavior is the messages sent by the marketer through the mass media. Specifically, any increase or decrease in sales was the direct product of marketing and public relations, with a limited influence from general trends in the characteristics of the market.
The conflux of these three forces is led marketers to think in terms of short-term campaigns, during which time their efforts were the only influence on the market that would have a predictable impact on consumer behavior.
THE THREE PATHWAYS MODEL OF CUSTOMER-BRAND RELATIONSHIP MEASUREMENT
The "three pathways" model for measuring brand takes into account (1) customer attitude, (2) brand sales, and (3) business value. The author concedes that this model is from the vantage point of the marketer, and is based on the assumption that the marketing organization controls brand, which is in contrast to the principle that the brand is a matter of customer perception, but it remains useful as a method of measuring brand value and estimating the impact of brand marketing efforts.
The author provides an overview of the three before going into detail:
The first pathway, customer-based attitudinal measures, seeks to determine the awareness, knowledge, and preference of the brand in the mind of the customer, with a focus on fostering a valid intent to purchase. A common measurement is the brand audit, which surveys customer knowledge of the brand.
The second pathway, brand sales, investigates short-term incremental sales as generated by the brand-relationship programs the company employs, as a means of establishing a causal relationship between short-term expenditures and their impact on product sales (EN: this seems analogous to the old-school "campaign" approach to measuring marketing success- perhaps the detail to come will better differentiate it?)
The third pathway, business value, seeks to measure the financial value to the brand to the firm over the long term, most often a five-year time span. This is most often determined by considering the present value of the cash-flow that the brand brings to the firm.
PATHWAY 1: CUSTOMER-BASED ATTITUDINAL MEASURES
This pathway measures the sentiment of the customer and prospect toward the brand, the organization, and the products. It is a soft measure, generally related to the knowledge and preference of those individuals who ware likely to buy in the future.
The premises to this pathway is the belief that customers attitudes drive their purchasing behavior, which is in turn based on the notion that the various forces that provide brand information to the market (chiefly, the organization itself), resulting in a positive or negative perception of the brand by the members of that market. The author concedes that this is largely based on the assumption that the marketer controls messaging, hence controls perception, which is not entirely valid, but still bears some consideration (the marketer may not control messaging, as the market receives information from various sources, but the market is often a significant player in this arena.)
The author mentions a few theorists (Aaker and Keller) who defined a concept of "customer-based brand equity" and noted that brand knowledge has a significant effect on the customer's response to any new information they receive about the brand. As such, monitoring the attitudes and opinions of customers is a necessary prerequisite, defining a current position against which the desire of the marketer to achieve a future state must be applied.
Fundamentally, the current perception of the brand is a bases of knowledge to which the customer cleaves, and additional information is assessed in light of that present position, and may either reinforce or change it. Also, that marketing efforts depend heavily upon their relationship to the present position - contrasting messages being harder to "sell" - and as such, a key factor in the response that the market will have to any new information communicated to it in regard to the brand.
The author concedes that methodologies for measuring brand equity derive from the older notion of the hierarchy of effects, and as such should be considered with some discretion, even though many are evolving to suit the current customer-driven conception of brand.
One model of brand equity is "Brand Dynamics," which considers the brand relationship to be a matter of five levels: presence (the individual is aware of the brand), relevance (the individual feels the brand offers them something), performance (the individual feels the brand is capable of delivering that value), advantage (the brand delivers value better than alternatives), and bonding (the customer has a sense of loyalty to the brand).
(EN: my sense is that the levels may also apply in the negative view - the customer may feel that the brand is of no value to them, to the point where they are hostile toward it. Hence, the marketer is not working to build on level earth, but may in some instances have to do some digging out.)
The value of the methodology is to assess the current status of the brand, determine how that perception changes over time, and compare the perception of the brand versus the perception of competing brands.
PATHWAY 2: SHORT-TERM INCREMENTAL BRAND SALES
The second pathway seeks to measure fluctuation in product sales, based on the assumption that the firm's marketing and communication activities have contributed to the difference. The qualification of "contributed" rather than "caused" reflects an acknowledgement that other forces may be involved in stimulating product sales.
In most instances, product sales can be witnessed in a general way, as a net sum from all purchasing activity, though there are instances in which the buyers can be segmented to various levels of granularity (e.g., a Web site that requires a login can track purchasing of individual customers, but most brick-and-mortar sales remain anonymous.)
To determine impact, marketers must first separate typical buying patterns - deriving a prediction of the "normal" sales volume that includes seasonal demand fluctuations, as it is believed that this volume of sales would have happened anyway, and that marketing efforts cannot claim credit. Hence, any "new" activity can be credited only with the difference between the expected baseline sales and the actual sales in the market.
Regression analysis can also be used to refine the accuracy of the baseline estimate: the degree to which the economy, the weather, or any other factor has a predictable impact on the baseline. It is also possible to include factors such as past marketing efforts (and the potential impact of discontinuing ongoing marketing efforts), which should enable the baseline to be further focused.
Ideally, predictive models can also be segmented, as the effects of messaging will be different for different target markets. Statistical analysis can also help to identify the customers and prospects most likely to respond to marketing activities, as a method for planning expenditures based on the returns they will achieve and calculating a return.
PATHWAY 3: BRANDED BUSINESS VALUE
The author suggests that it is the brand, rather than the product or the company, that is the primary factor in ongoing relationships with customers - and as such, it is reasonable to suggest that it is the brand that generates the future revenue stream for the company, which is the basis for the valuation of the business.
(EN: the author approaches this topic in a roundabout way, but in a more concrete sense, the value of a company is represented by its market capitalization, which far exceeds the cash value of its liquidated assets. Finance and accounting have various ways of addressing this phenomenon - but it is reasonable to ascribe this additional value to brand equity: the expectation that revenues will perpetuate and grow is based on customer behavior in response to the value of the brand.)
A GENERAL MODEL FOR BRAND VALUATION
The author describes a model created by Brand Finance, PLC, a British brand consulting firm, conceding that it is not necessarily the best or most accepted model, but that most other approaches to brand valuation follow similar approaches.
In once sense, brand can be seen as the premium customers pay for a given brand, over what they would be willing to pay for a generic version of the same product. This is fairly straightforward in instances where generic products are already available, but involves some degree of guesswork in the absence of a marketplace generic.
It's noted that this can vary widely. In some instances (supermarket goods), the value of a branded good may be only 1% higher than a generic competitor. For cosmetics and fashion items, the brand may be 70% or more: consider that a designer suit can command $15,000 whereas a store-brand suit made of the same material may sell for as little as $150.
One must also account for the decrease in demand that would also occur - as not only would customers pay less for a generic, but fewer customers would purchase at all (they would likely flock to a different brand). This can be more difficult to estimate, and depends largely on the product category, as customers are more acceptant of generic versions with some products than with others.
Once both factors are considered, a net present value of the future revenues can be tabulated. The author suggests doing this for a give-year period, which will facilitate comparison between firms as well as in a single firm over time. It may also be useful in instances where a company is seeking to sell a line or business, or just a brand, to another firm.