Financial Times & IPA Study Uncovers What’s Causing the Decline of Brand-Building

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It’s no secret that brands matter to business leaders. A recent study found that intangible assets now contribute 84% of the market value of S&P 500 businesses and that, on average, the brand contributes 25% of that. In contrast, 80% was accounted for by tangible assets in the 1970s.

That’s why it’s surprising to find an industry-wide threat to the power of brands to deliver long-term value and growth. According to Enders Analysis, over the past 16 years, direct response has accounted for over 70% of growth in annual UK advertising spend. There has also been a shift in annual advertising budgets of over £2bn from longer-term brand-building to short-term performance campaigns. Plus, there is evidence that effectiveness from advertising is in long-term decline and consumer trust in brands is decreasing.

This is in spite of the fact that evidence continues to emerge, showing optimal growth and profitability come from implementing a balance between short- and long-term marketing.

We recently partnered with the Institute of Practitioners in Advertising (IPA) and published a study, called The Board-Brand Rift, to try and determine why brand leaders are making decisions that contribute to these changes in the marketing investment horizons. We also wanted to establish what best practices look like.

For our study, we sought input from a global sample of FT readers, of whom 43% are c-suite and 36% who list marketing, advertising or PR as their core function.

What did we find?

The concept of the ‘brand’ still exists

83% of business leaders believe that brands deliver to the bottom line and three-quarters claim to understand how. There’s an apparent understanding amongst leaders that focusing solely on short term is, overall, bad for business. Two thirds agreed that a better balance between short- and long-term marketing objectives will deliver a greater return, with 62% of business leaders taking saying that they are steps to address this.

There is a lack of confidence in knowledge

Strikingly, over half of leaders – who are setting marketing objectives – rated their own knowledge of brand building as “average” to “very poor”. Under half of those organisations with weaker brand understanding at the board-level agree that a balanced approach delivers better performance, compared with 83% among those whose brand-building knowledge is self-rated as ‘good’ or ‘excellent.’

Lack of appropriate measurement

Less than a third of organisations use ‘brand health’ metrics, which report on factors such as salience, distinctiveness and favourability, at board level. Leaders expressed a desire for better measurement of the commercial impact of brands and claim that this shortcoming is the primary reason for the imbalanced approach to marketing investment.

What are the recommendations?

The good news is that there is room and desire to improve. With better knowledge and an understanding of how to successfully build a brand in the long-term, businesses leaders can realise some very real commercial benefits.

Here are our top tips for general leadership and marketers – a full list can be found in our report.

For general leadership:

Build awareness across business disciplines of the evidence for brands’ contribution to commercial performance.

Business leaders need to be better aware of the commercial benefits of longer-term brand-building and taught how the brand contributes to financial performance.

Assess current brand metrics and, where possible, link these to measures of commercial contribution

Marketing teams should be challenged to create and ensure that brand health metrics are fit for purpose, robust and credible. Subjective judgement will always be needed to fill in the inevitable gaps; not everything that delivers value can be measured. Use of relevant brand measures should be folded into Annual Reports and other official documents.

Share credible brand metrics with external audiences to demonstrate competitive advantage and transparency

Brand health metrics should be taken externally! Non-confidential metrics can prove that longer-term decision making is building value and creating competitive advantage.

For marketers:

Create an evidence bank

Create an internal databank of evidence for building brands. This should include contributions to the financial objectives and the benefits of marketing balance, as well as evidence of the importance of creativity to commercial value (plus, a reminder to senior management that not everything can be measured!).

Promote evidence internally and widely, but use the heart and the head

Communicate robust and useful evidence to peers and senior management, but remember that data needs to be used with the judgement of experienced marketers who understand human behaviour. Use the heart and the head.

Analyse own plans and processes

Analyse current marketing plans and budget allocation for short-, medium- and long-term strategies. Create a process for analysis at the planning stage if necessary, and ensure senior-level sign-off. Agencies should be braver in challenging clients on objective horizons.

You can read the entire Board-Brand Rift report here.

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