Marketing as an Expense: How Can Marketers Gain Greater Recognition from Capital Owners?

The full blog article by Saša Ćirić, Marketing and Development Director at Neoplanta, was originally published in the online edition of Marketing Network.

How high is the ROI on brand investment? How much will a campaign increase sales? These are legitimate questions that marketers often receive from those responsible for managing capital.

It is important to understand that brand growth, whether measured through sales growth, market share or profit, is largely the result of previous investment in the brand.

According to Byron Sharp, more than 90% of brand investment relates to its long-term effect, while other renowned marketing theorists, such as Keller, Kotler and others, emphasize the concept of long-term brand value.

This raises the question of how long-term brand value can be measured – in other words, how do we know that our strategy and investment will generate growth in the years to come?

Brand value exists when consumers have experience with a brand and when it is present in their memory through strong, positive and distinctive associations. In this sense, “brand knowledge” represents the starting point of brand value. The first step is communication salience – the extent to which people have seen a campaign and correctly associated it with the brand. Janni Romaniuk defines this metric as branded reach.

The traditional indicator of brand awareness has long been the primary measure of “brand health”, but today it is no longer sufficient.

The mere fact that a consumer knows a brand does not necessarily mean they will remember it at the moment of purchase. This is why measures of mental availability are more useful. First and foremost is Mental Market Share (MMS), which shows the relative strength of a brand in consumers’ minds compared with competitors.

When MMS is compared with market share, it provides an important indication: whether the brand is lagging more in terms of mental or physical availability.

Next, Mental Penetration (MP) shows how many people have at least one association with a brand, while Network Size (NS) indicates the breadth of that network of associations – in other words, the number of different situations in which consumers consider the category covered by the brand (Category Entry Points – CEPs).

Finally, Share of Mind (SOM) shows how strong a brand is in terms of associations among consumers who already have it in their memory. Taken together, these metrics provide a much more precise picture of a brand’s actual mental strength than the traditional brand awareness metric.

In addition to long-term brand value, it is important to measure investment effectiveness. The first key indicator is penetration, because brand growth primarily comes from increasing the number of buyers. This is precisely why Sharp emphasizes that penetration is the main driver of growth, while loyalty largely follows brand size. If a brand does not expand its customer base, it is difficult for it to achieve sustainable growth.

The second important indicator is price elasticity. A brand that succeeds in creating value for consumers can capitalize on part of that value through pricing. The lower the elasticity, the greater the brand’s ability to increase prices without a significant decline in demand. This is one of the most tangible indicators of brand strength.

By contrast, excessive reliance on price promotions can increase sales in the short term, but often comes at the expense of profit, lowers the reference price and increases the brand’s price sensitivity over the long term. In other words, promotions can deliver quick results while simultaneously undermining long-term value.

Finally, we come to ROMI. This is an important indicator, but it is not sufficient if viewed only in the short term. A brand can achieve a good ROMI if it communicates primarily with existing customers, as less investment is required to trigger a response from them.

However, this approach often fails to increase penetration and, consequently, does not contribute to long-term growth in market share.

ROMI should also be viewed over a longer time horizon, as the incremental profit generated by additional investment in the brand over several years. In this way, brand investment formally becomes an investment rather than an expense, because it is measured, among other things, in the same way as any other CAPEX, or investment in fixed assets.

To sum up, when managing brands, alongside standard business indicators such as revenue, profit and market share, it is important to include the following metrics: branded reach, to measure campaign salience; the four parameters of mental availability (MMS, MP, NS and SOM), to ensure that the brand is making an impact on consumers; penetration, which signals that the brand is achieving healthy growth; and price elasticity, which shows that brand value is increasing and can be capitalized on through price increases.

Finally, there is ROMI, which can help us treat brand investment as an investment rather than an expense – allowing capital owners to better understand its value and place greater importance on the role of marketing.