Profit Brand: How to Increase the Profitability, Accountability and Sustainability of Brands

Citation

Paswan, A. (2007), "Profit Brand: How to Increase the Profitability, Accountability and Sustainability of Brands", Journal of Product & Brand Management, Vol. 16 No. 4, pp. 293-294. https://doi.org/10.1108/10610420710763994

The book starts with the premise that there is disconnect between brand managers and CEO/CFOs. Brand managers' language includes soft and fuzzy words such as “creativity, imagination, impact, position, buzz, impressions, image, emotions, service, customer relationship and experience”, and the outcomes measured include words such as “trust, loyalty, brand power, and brand reputation”. However, CEOs and CFOs often speak a language that revolves around “ROI, internal rate of return, efficiency, productivity, cost‐justification, cash flow, contribution margin, and profit”.

The author urges that despite these very different views, these two groups must find a common ground and suggests that this common ground must be based on the recognition that “branding is a strategic investment” (p. 1) and must be measured and managed by the criteria that guide any strategic investment. In other words, the branding profession must incorporate the notions of profitability, accountability, and sustainability. The approach suggested by the author is based on the integration of traditional marketing philosophies and activities with “technology, measurement and operations” (p. 5). Clearly the topic and the premise of this book are extremely crucial for marketing in general and brand management in particular. “Branding is a valuable corporate asset that can increase profitability, sales and even share value” (p. 7).

The book starts with a historical review of branding through three broad stages: the mass economy (pre 1995), customer economy (1995‐2006), and demand economy (post 2006). The mass economy imperative outlined by the author included focus on sales and market growth, mass media, awareness, positioning, segmentation and targeting. Despite its popularity and power, the author contends that it suffered from a lack of effective measurement. The customer economy was a result of changes such as fragmentation of media markets, an increase in retail power, and intense competition. The imperative of this economy included focus on factors such as customer relationship and access, quality of the process instead of the products, and measurement. While this economy was characterized by evolved measurement such as awareness, impressions, and creativity, these measures were still not clearly linked to profitability or other financial measures of brand success. Finally, the demand economy is driven by globalization, internet and wireless technologies, and customization capabilities. Its imperatives include increased consumer accessibility, integrated supply chain, immediacy, personalization, and a strong focus on measurement. The author suggest that in order to become successful in the demand economy, firms have to “become much more knowledgeable about customers” and “marketing executives will have to become more skilled in business process management, supply chain management, multiple technologies and financial analysis” (p. 19).

The author suggests “profit branding” as the effective branding strategy for this demand economy. The notion of profit branding is posited to be different from acquisition and retention branding. It consists of six characteristics – attention instead of simple awareness; transactional excellence through people, process, and systems; trust by keeping promises made; customer loyalty and advocacy; and brand profitability. Viewed from a customer's perspective, profit brands must deliver emotional (worth having a relationship with this brand), experiential (effective operational capabilities, policies and procedures based on the customer's perspective), and economic value (greater return to the customers through an effective and coordinated supply chain). In terms of process, profit branding involves finding right customers, retaining customers, growing the profitability of existing customers, and incorporating accountability to branding activities and processes.

At this stage, the author discusses problems with existing methods of measuring brand equity, e.g. not taking into account the customer relation and shortcomings of accounting systems. As an alternative, the notion of customer equity with a very strong customer focus is proposed. Some of the benefits of customer equity include improved profitability, increased accountability, segmentation insight, investment insight, and increased advocacy by customers. However, a word of caution is introduced here – customer satisfaction is not loyalty, and loyalty cards are not loyalty marketing. In order to effectively calculate customer equity, one must start with relevant and accurate data (customer information, purchase history, and financial information such as cost and revenue) and make it accessible throughout the firm. Further, the author suggests that firms must collect data about acquisition branding, track customer retention, analyze customer life cycle, develop a retention focused environment, ensure that employees understands and adopt the retention philosophy, and set goals based on retention.

The next chapter (4) provides the mechanics of calculating customer equity, which is fundamentally based on lifetime customer value. This includes both accounting data (acquisition cost, COGS, cost to serve, NPV, and profit), and customer data (retention rate, customer life cycle, referrals, and intangibles). The actual computation procedures are numerous (e.g. recency, frequency, and monetary value; retention based customer equity, average customer equity, etc.), and each one has its own advantages and disadvantages. The biggest obstacle suggested is the difficulty of data collection. In addition, the author suggests the notion of acquisition equity (different from retention equity) as a potential measure of marketing efficiency and ROI.

The remaining chapters deal with operational aspects of profit branding. Chapter 5 focuses on segmentation and argues that segmentation for profit branding should be based on behavioral variables – purchase activity and usage – and not so much on demographic or attitudinal variables.

Chapter 6 focuses on strategies to increase customer profitability – retention versus acquisition. Firms must engage in customer planning by finding, keeping, and growing high‐profit customers; aligning cost to profitability; enhance penetration by customer, account, and product. Some of the tactics for increasing penetration include ongoing communication, guarantees, emphasis on the total cost of ownership, services not products, special offers, always keeping the customers first, and managing and even firing unprofitable customers.

Chapter 7 emphasizes the role of pricing. “Customer equity is how companies create value. Profit Branding is how companies deliver value. Pricing is how companies capture that value” (p. 99). The author further suggests that customer focus is crucial for effective pricing ‐ “The ‘best’ price maximizes profitability yet also matches customer perception of value and price sensitivity” (p. 101).

Next, communication aspects are discussed in chapter 8. The author contrasts communication strategies adopted during a mass economy with those suitable to customer economy. The goals of communication strategies aiding adoption include attracting, retaining, and developing advocacy. The chapter acknowledges different goals and strategies for different constituencies – prospects, customers, media/analysts, investors, employees, and possibly competitors, and it lists eight key principles – set objectives, target, leverage interactivity, integrate, track, test, measure, and analyze.

Chapter 9 suggests that a systematic approach to branding, such as Balanced Score Card or Six Sigma, in comparison to haphazard execution, is crucial for success. The Balanced Scorecard approach requires firms to be cognizant of four interrelated components: customers, internal business process, financial, and learning and innovation.

The role of metrics, especially financial, customer and operational measures (p. 140) is also stressed in Chapter 10, along with the importance of learning from customers – customer interviews, market/competitive research, feedback, customer interactivity, entrance and exit interviews. However, once again we are warned against confusing customer satisfaction with a brand success measure.

Chapter 11 focuses on customer service experience and argues that despite its importance, service is often sacrificed because of the cost associated with it. Three principles are suggested as the core of profit brand service – end‐to‐end customer service, institutionalization of customer knowledge, and service culture (p. 163). However, lack of resources, inefficiencies, lack of customer culture, and finally improper organization structure often lead to negative customer service experience.

Chapter 12 discusses different types of loyalty programs and suggests that they are an effective tool for cementing the bond between the firm and its customers as well as quantifying customer relationships. In addition, the author discusses some key trends shaping loyalty programs – rapid improvements in technology, program flexibility, and real‐time rewards.

Chapter 13 focuses on coordinating all aspects of profit brand activities across the entire supply chain. Four allies – evangelists, supply chain partners, channels, and strategic partners – are identified as key interest groups that influence the success of profit brand. In chapters 14 and 15, the author tries to bring these to a conclusion, reemphasizing the notions of accountability through profitability and customer equity on a sustained basis. In order to propel branding into boardrooms, brand managers must learn about supply chain, technology, statistical and financial analysis. Without these, the gap between brand managers and CEOs will continue to widen.

In summary, the book deals with an important aspect of brand management – incorporate accountability. It starts with sound philosophical and conceptual discussion, but gets bogged down with tedium when it starts to focus on the operational details. However, despite this, the book I feel makes an important contribution by focusing a crucial aspect of branding and would benefit the students and practitioners of brand management.