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How to Build Brand Equity

Advertising won’t build brand equity unless you evaluate everything the customer sees and associates with your business in the context of whether it is sending the "right message."

The best advice I ever heard about marketing spending is, “ignore what accountants say!”

The reason is not because one should question the advice or business acumen of accountants. Rather, it is because generally accepted accounting principles require every business to record its spending on marketing as an “expense” in the period when the expenditure occurred. As such, every dollar spent reduces net income in the period when the expenditure is made and, therefore, every marketing expenditure needs to be justified against its ability to produce sales in the same period as when the spending occurred—or profitability suffers.

By contrast, when we buy, say, computer equipment, we get to spread that expenditure over the life of the machine, reducing income in each of those years by some fraction of the cost. Thus, we “invest” in information technology, but “spend” on marketing activity.

This difference is more than semantic. It means that when we evaluate a marketing expenditure, we tend to focus on its short-term impact: marketing programmes that produce immediate sales (like sales promotions) are implicitly favoured in that evaluation over those programmes (like branding and relationship building) that have a more lasting, but harder to measure, effect.

Indeed, this is why, in so many firms, so-called “marketing” is really just advertising and sales management. It is also the reason why many so-called marketing programmes fail.

For example, look at any object on your desk and describe it. You probably described its physical appearance —its size, shape, weight, colour. Now, how would the description change if that product were made by Fisher-Price? Apple? BMW? You’ll likely find yourself adding assumptions to the description about its overall quality, value, reliability or ease of use. Now ask yourself: How much was spent to convince you the product had those characteristics?

The answer is “nothing.” Why? Because over time, these companies have “invested” in creating brands that mean something. We call that “brand equity” and it is every bit as powerful an “asset” as computers, cars and the like. Indeed, great brands have the rare ability to enable you to simultaneously achieve higher prices (due to the positive associations) and lower costs (due to existing relationships that lower spending requirements to gain awareness or even trial).

A common perception is that building brand equity requires a big budget and/or a willingness to forego short-term profitability for longer-term performance. While both conditions make it easier, neither is essential.

Marketing has two impacts on performance: an immediate and direct impact and a cumulative impact over time. The direct effect comes from trial-inducing awareness of what we offer today: the cumulative impact occurs as customers “learn” over time what our brand represents. Advertising is but one medium for communicating those “lessons.”

Indeed, if “actions speak louder than words,” then all of the advertising in the world will do little to build brand equity unless you reinforce that message on every occasion. That means evaluating your offices, dress, communications, and everything the customer associates with your business to ensure it is sending the “right message.” When this is done, your expenditures in other areas become a marketing investment without you needing to spend more. Best of all, this will also enhance the response you get from more conventional advertising and sales efforts.

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