Over the past few years, I’ve had the great pleasure of getting to know Jonathan Knowles–one of the smartest marketing thought-leaders around, and an expert on marketing finance. I interviewed Jonathan for a number of columns when I was writing for BusinessWeek Online, I invited him to speak before the CMO Council, and he’s keynoting this year’s Elite Retreat in Hawaii. Among other things, Jonathan turned me on to the theories of Lev Baruch, and the growing role of intangibles in defining the market value of businesses. He’s also written what I think is the most readable and entertaining book on marketing ROI.
Jonathan has just written an important article for the AMA’s Marketing Management magazine that looks at the differences between accounting, finance and marketing views on brand equity. The article, along with a number of other related marketing/finance resources that Jonathan has written, is available on his site on a page that lays out some of the basics marketers should know about brand equity and marketing finance.
One of the critical observations that Jonathan has brought home for me over the years, and which is discussed in his AMA article, is the dramatically different world views that characterize marketing and financial thought. This is a deceptively simple concept with dramatic implications. For example, Jonathan writes:
the (unspoken) assumption of most finance people is that customer decision making is dominated by purely rational criteria.
The equal and opposite assumption of many marketing people is that customer decision making is driven largely by emotional and psychological triggers. These unspoken assumptions dominate the expectations marketing and financial people bring to the table, and yet they are rarely discussed. This is only one example of the gap between CMOs and CFOs–a gap that begins with the very definitions of words we both use to communicate vastly different ideas, such as the meaning of “value”.
I can’t do justice to the depth of Jonathan’s work in a short post–Jonathan’s great gift is that he makes complex ideas accessible and easy to understand. But these are important articles that every marketer should read, especially as the unstable economy drives greater scrutiny into budgets and program performance.
Marketing’s credibility depends on its ability to explain to business people the value of what they do, beyond basic sales response activities. The concept of brand equity is core to the argument about how marketers are creating a long-lived asset for the business in the form of a brand. But to pass the pass the sniff test for finance people, marketers have to show that marketing-created assets actually generate incremental cash for the business. Which means marketers have to go beyond their usual attitudinal metrics to demonstrate impact on actual customer behavior.
Jonathan lays this all out in the Marketing Management article, and suggests four arguments that marketers can use to show that brand equity is adding to the value of the business. Essential reading.