Measuring Brand Communication: Return on Investment

Citation

Jonathan Zajas, J. (1999), "Measuring Brand Communication: Return on Investment", Journal of Consumer Marketing, Vol. 16 No. 6, pp. 616-628. https://doi.org/10.1108/jcm.1999.16.6.616.5

Many years ago, a well‐respected advertising executive was asked, “How effective is the typical dollar spent on advertising?” His reply was honest and direct. He said, “Fifty percent of most advertising dollars generate substantial sales increases for a firm or company. The remaining 50 percent does not. There’s just one serious problem. We don’t really know which 50 percent brings the greatest results”.

Well, now there is a better way to measure or assess the return on investment gained from a firm’s advertising, marketing, and brand communication expenditures. In chapters one and two of their new book, Schultz and Walters identify the forces driving the need to measure advertising, marketing, and brand expenditures. They identify the current measurement systems (like TV versus magazine advertising, sales promotion versus advertising as consumer incentives, or price reduction versus in‐store displays or mail‐in coupons) before contrasting the current system with finite versus budgeted resources, compared to the value of brands and branding. In the process, they introduce a vital and interesting topic to advertising and business executives alike.

The authors review several historical models for assessing a firm’s advertising expenditures. First, they review the “hierarchy of effects model” (developed in the late 1950s by Robert Lavidge, a market researcher, and Gary Steiner, a University of Chicago professor). This model is attitudinally driven, and it offers a “theoretical basis for most advertising development, understanding, and explanation in use around the world today” (p. 24). This first model presents three sequential steps (cognitive, then affective, then conative) whereby consumers evolve from an awareness of a need (or want), “to knowledge, to preference, to conviction, to actual purchase behavior of a product or service as a result of exposure to advertising messages” (p. 25).

The second model that Schultz and Walters review was developed shortly after the hierarchy of effects model. It is known by the acrostic: “the DAGMAR model”. In the early 1960s, the Association of National Advertisers (ANA) retained Russell Colby to assess ways for measuring the impact and effect of advertising (p. 26). His research resulted in the formulation of the DAGMAR model (stands for Defining Advertising Goals for Measured Advertising Response). Whereas the hierarchy of effects model stressed behavioral effects, the DAGMAR model focused on communication effects of advertising messages; thus, it strove to remove (or minimize) “behavioral measures in favor of attitudinal measures to explain and illustrate the impact and effects of advertising” (p. 26).

The third model reviewed by Schultz and Walters is Longman’s “marginal analysis approach” which asserts that advertising should “generate the greatest sales results between the threshold level (sales without advertising) and the maximum sales capacity (whatever level is optimal)” (p. 28). The objective, hence, is to drive the sales curve up until some optimal return was reached (i.e. the greatest sales with the least amount of advertising investment).

The fourth model reviewed by the authors is Vaughn’s Foot, Cone and Belding (FCB) “Grid”. Instead of offering yet another measurement technique for assessing advertising expenditures, this fourth model presents a new approach to how attitudinal information and research can be used in planning and influencing consumer behavior. This model provides four diverse quadrants (thinking/feeling versus high/low involvement) and proposes four advertising planning strategies, as follows: Quadrant 1, Informative; Quadrant 2, Affective; Quadrant 3, Habitual; and Quadrant 4, Satisfaction. Each quadrant is linked to Lavidge and Steiner’s Hierarchy of Effects Model with quantification given by Colley. By so doing, this model helps to integrate the other three models while giving quantitative support regarding the use of attitudinal data as a basis for assessing advertising expenditures.

Out of all the models reviewed, Schultz and Walters choose the Longman marginal analysis approach as the foundation for their new measurement model for advertising expenditures. Other “models” from which they borrow as a basis for their analysis are the Integrated Marketing Financial Analysis and Planning Process (pp. 83‐7), the Spreadsheet Approach to Measuring Return on Business‐Building Brand Communication Programs (pp. 123‐41), the Lifetime Customer Value (LTC) model (pp. 145‐8), and the Customer Brand Value (C‐BV) real world approach (pp. 149‐). As the authors note in chapter 11, “we can evaluate opportunities and threats in terms of the C‐BV model using the customer and brand dynamics derived from market research, financial analysis of brand profitability and competitive assessment... This process illustrates the importance of the four fundamental growth levers of the brand which are the building blocks of C‐BV: (1) penetration, (2) buying rate, (3) share of requirement, and (4) contribution margin” (p. 154).

In chapter three, the authors discuss how new forms of technology are changing the measurement rules for advertising and marketing. They assert that from the 1960s to the present (especially in the USA) numerous factors have contributed to a marketplace in transition. These factors include: re‐emergence of competition, globalization, rise of quality, price competition, cost cutting re‐engineering, logistics or digitalization, and information technology. The authors contend such forces have resulted in a shift in marketing power from historical marketers, to new marketers, to twenty‐first century marketers (p. 42).

In chapter four, the authors identify the key factors that need to be measured in advertising and marketing. They compare behavioral and attitudinal measures, discuss the importance of functional activities and ROI (return on investment), and present valuable consumer sources of information (using McDonald’s as the chapter case example). The chapter closes with a discussion of income flows and customer investments.

In chapter five, Schultz and Walters illustrate the planning process used to develop the measurement of income flows. They then explain how to relate that income flow to marketing activities and brand communication programs, while stressing the importance of internal brand communication. The chapter concludes with an overview of the dynamics of internal marketing, interactive marketing, and workplace marketing (refer to Figure 5.6, or pp.67‐9).

In chapter six, the authors present the foundation of their new measurement system as they show how to plan an external brand communication measurement system. They discuss how to identify essential wants, needs, and requirements, they present the importance of behavioral databases (as well as their organization and management), and they outline their “Five Step Integrated Measurement Planning Process (FSIMP)” as follows:

1. 1.

   (1) Customer analysis and evaluation from behavioral database;

2. 2.

   (2) Integrated marketing financial analysis and planning;

3. 3.

   (3) Integrated communication planning;

4. 4.

   (4) Return‐on‐customer investment measurement; and,

5. 5.

   (5) Budgeting and allocation.

In the authors’ words, “this five‐step (FSIMP) integrated measurement planning process is offered to provide the reader with a new method of thinking and doing that can be adapted and adopted by any type of organization anywhere in the world” (p. 79).

In chapter seven, the authors discuss the basic issue of their book: communication or finance. They also present a suggested solution to the “historical bugaboo: brand communication time frames” (p. 99). As the authors suggest: “Because of accounting principles, most organizations have no way of tracking future income flows from customers or prospects beyond the current fiscal year. The only value is the current period and the only relevant measurement is what happens or has happened within that time frame. This is one of the reasons [why] it is so difficult to explain current advertising measurement systems to top management or to have them actually implemented within the organization. To solve the measurement problem, we must solve the time frame problem” (p. 101). The chapter ends with a discussion of how to separate brand communication into business‐building and brand‐building activities.

In chapter eight, a brief review is given of current brand communication budgeting and allocation methods. Tips and suggestions are provided for building brand communication, measuring customer loyalty and retention, and turning the brand into a corporate asset. Some of the more popular advertising budgeting methods are included in the body of chapter eight (such as advertising as a percentage of sales, advertising to margin, per case allowance or case rate, a fixed sum per unit or by number of customers, inertia or the same amount as last year, media inflation multiplier, and competitive comparisons). Helpful business‐building spreadsheet examples are also provided in this chapter for clarification sake. One interesting feature of chapter eight is the inclusion of international accounting principles followed in the UK (the UK, p. 116).

In chapters nine and ten, the authors use the spreadsheet approach to measure the return on business‐building brand communication programs, while working through a ROI consumer product goods example. Discussion is provided on what is a “good versus a bad” return on investment (ROI), as well how to measure the value of brand‐building communication investments. In addition to a conceptual model of brand building being provided, the authors, in chapter ten, give a real world approach to brand valuation for determining customer brand value. The final chapters provide a case study for measuring C‐BV and using customer brand value to drive investment strategies. The book concludes with a discussion of global implications for measuring the return on brand communication investment.

This book offers a highly technical, and fairly quantitative approach to the topic of measuring advertising expenditures. It would probably not be an appropriate textbook at the undergraduate level in advertising or marketing, but it should serve well as a useful reference book for use at the graduate level. As a marketing strategy consultant and business professor, I would have wanted to see more practical examples and cases throughout the book (especially the first several chapters). There are no end‐of‐chapter questions, review concepts, summaries, or highlights, so the book is geared more toward the practitioner than the academic student. It does offer four‐and‐a‐half pages of valuable endnotes (or footnotes), but no glossary. However, the five‐and‐a‐half pages index is helpful for reference and comparative purposes. Overall, the book provides a wealth of models and analysis techniques for measuring advertising expenditures while giving the reader a plethora of approaches for dealing with hard‐to‐measure topics. It should prove to be of interest to the CEO and CMO (chief marketing officer) as well as the CFO (chief financial officer) in most profit‐based, marketing‐driven organizations. Because the book succeeds in explaining the real value advertising and brand communication bring to the enterprise, the authors have done well in simplifying a complex dilemma: how then should we measure advertising, marketing, and brand communication expenditures? To this end, the book offers the reader a valuable and informative remedy to an age old quandary.