Tag Archives: Jonathan Knowles

Brand Equity–Measuring the Gap between CMO and CFO

BluecokeOver 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.

A little Pre-flight Planning, and Ranting

–I’ve got an 11 hour flight to Tokyo today, for which I’ve planned about 50 hours of work. I’ve got a powerpoint to finish, a report to write, a functional spec to update, a new pilot to plan, half a dozen studies to read, and a book to review. I do this everytime I fly, and then wind up getting 2 or 3 hours of actual work done. But hey, I like my delusions. They make me feel productive.

Two things I’m planning to find time to read over the next week are Jeremiah Owyang’s new report on Online Community Best Practices, and Jonathan Knowles’s latest book Vulcans Earthlings and Marketing ROI. I can’t think of two better people to fill my brain for the next week. Jeremiah is without a doubt the leading analyst on Social Media–the guy is incredibly prolific and engaged. Jonathan owns a lonely but critical and fascinating corner at the intersection of branding and finance–he’s the guy you want at your side when you’re sitting in the boardroom justifying your marketing budget.

To wrap up the week, I want to point out an article over at MediaPost, on the ways agencies are missing hte social media boat. I don’t have time for a full-throated rant, but I think this article is deserving of one. Few people would argue that most agencies don’t get social media. There are a few reasons for this, of which the most compelling to me is the fact that agencies have evolved in a marketing bubble–a world in which media was owned by the few who could afford it. Agencies never evolved to engage with customers because media didn’t work that way; agencies evolved to leverage mass media to deliver their story, either by manipulating the story through PR, or by attaching their message to the media story with advertising. Customer engagement is not in the agency DNA, so it will take a while for agencies to get it.

However, to measure the degree to which agencies "get it" by the number of blog posts they write, or the size and activity of their Facebook groups is absurd. There are plenty of agencies that are good at leveraging the vehicle of social media, but still don’t get the concept. Edelman has exemplified that truth many times over–using the technical medium of social media to deliver old school manipulative campaigns.

This article exemplifies myopic marketing thinking–suggesting that the form of Social Media is the same as the social word-of-mouth imperative that underlies it. This is the same mindset that rewrites marketing fundamentals with each new trend. The Internet: marketing is all about…. Experience. Your brand is… Experience. The dotcom crash: marketing is all about…. ROI. Marketing is lead generation with numbers you can track to the bottom line. Web 2.0: marketing is all about… Community. Word of mouth.

C’mon people. These are trees in a big forest. So much of the value of marketing is in the long history of what we’ve learned over one hundred years of marketing evolution. The next new thing is not a definition of new fundamentals. It’s just another wrinkle. So don’t get caught up in judging marketer’s worth by the number of Facebook friends they have, or blog posts they write. What matters is how they’re connecting with their market communities, and if a lot of that happens off the Web 2.0 screen, that doesn’t make it any less valid–just like a lot of public puffery and dizzy connections doesn’t make you a social media expert.

Just saying.