Saturday, October 29, 2011

Brands Are Built over Years, Why Are They Managed Over Quarters- Main Points

Key Pointers:- Case was written on November, 2006

A brand is build over years and the factors that speed up building the brand are:- Competition, Image of your company and strategy..

1. Promotional activities in Brand Management are on the rise between 1978-2001.It has increased from 33% to 61% of firm's marketing activities.This action is usually taken to generate short term increase in sales.
2. Promotional activities such as coupons, discounts are pushed in the marketing budget at the expense of advertising.Advertising spend has fallen from 40% to 24% from 1978-2001.

What are the factors or long term effects that  can counter the short term increase in sales and profitability due to promotions:-

1.Consumer Learning :- Promotional activities has certainly taught us to anticipate that good deal is coming and consequently during promotional activities, sales increase but margins decrease and large part of inventory is sold off at low margins.

2.Brand purchase attributions:- By focusing more on price rather than quality and desire to own that brand, the brand equity is continuously on decline.With promotions as a core strategy for enticing customers, there is more focus on extrinsic values such as price and no focus on intrisnic value such as differentiation, loyalty.

3.Competitive Response:-By lowering your margins, you are encouraging your competitors to lower their margins. As a result, promotions keep on increasing but sales don't.

The things that are promoting Promotions as compare to other Marketing Mix is that it is easy to make a case for discounts as results are easy to measure while advertising, new product development, distribution networks are difficult to measure in the short run.

Short term elasticities for advertising is 0.11( % change in quantity/ % change in advertising) while price elasticities are 20 times greater but point to consider here is that advertising has better lingering long term effect as compared to price.The case that can be put in favor of advertising is that it makes brand stronger and price sensitive over a period of time while price war has only one way-> making a brand into commodity..Reserach on a list of  25 packaged food products suggest that product development is singlemost factor in increasing baseline sales..Discounting activity had smaller but negative impact on increasing the baseline sales.

Wallstreet
One dilemma in allocating more budget towards product development and distribution vis-a-vis disounting and advertising is that results are measured quarterly and brand equity in stock markets are measured on the immediate and short term gains.As discussed product development and distribution produced long term and sustainable effects over a period of time and therefore brand managers and marketing officers who are having an average lifespan of 11 months in the company are hesistant to follow a more sustainable approach.

How can we address these issues is by taking a more sustainable approach to the entire problem and developing metrics for longterm appraoches, easy to calculate and measure.

1. We can say that if *baseline sales are increasing and price elasticity is decreasing then brand health is improving and there is no need to focus extensively on brand development strategies.
2. If price elasticity is increasing and baseline sales are decreasing then there is need to build brand health strategy and there is strong need to focus extensively on brand development strategies.

So what are the metrics that are required by a marketing manager:-
A:- The estimated brand price at no-promotion.This is known as baseline sales
B:- The change in baseline sales over months,quarters and year
C:- Regular price and promoted price brand elasticities
D:- The change in brand price elasticities over months,quarters and year.

An example of brand that is measured by these metrics is LaCoste Tennis brand.It seldom offers discounts and its price elasticity is very low.

Promotional lift represents increase in sales with respect to promotions.If price elasticity is high that means customer is more likely to buy your product when promotions are high and consequently margins are lower and profits are less.

Promotional Lift is inversely proportion to Price Elasticity

Conclusion

Promotions and taking short term of discounts are detrimental to overall health of brand.Other components of marketing mix that are difficult to measure should be considered to measure the long term effects of brand health. We can maintain our brand health by taking these intitatives:-

1.Develop long term metrics- A dashboard for marketing managers
2.Retaining long history of data - Brands are created over a period of time and it is unfair to judge and take decisions on the basis of quarterly performance.
3. We can use baseline sale and price elasticity as long term metrics.

The ultimate goal is to make customers take ownership of brand rather than marketing managers taking the ownership of brand..


  • Sales in the absence of promotions are known as baseline sales
  • Private label share(products and services manufactured by one company for offer to other company) is continuously going down for last ten years

*****Marketing Campaign Metrics

CPM- Cost per Mile:- Cost per thousand
CPO:- Cost per Order( It also includes promotions)
OPM:- Converted from percent to thousand
AOV:- Average Order Value
Hurdle Rate:- Rate fixed by the financer
Margin

In Finance
ROI:- (Return- Inv)/Inv

where Return = Revenues- Investments

However, in a Marketing Campaign, we have
ROI= (Contribution- CPO)/CPO
 Example
 
ContactsResponse RateOrdersCPMCPOAOVMarginContributionROI( Contribution- CPO)/CPO
10,0002%200$500 2510060%$60 140%


Conversion rate = Response Rate in this example
Key Code:-For example Extension Code, to measure response effectively

The key to measure success of marketing campaign is to plan your marketing campaigns according to metrics

Continuity Program for Selling:- Continuous selling program. e.g. Coffee.













" Marketing is like foreplay and sales is actually doing the job"