Branding and communication for financial managers
The function of branding and communication often feels like it is in competition with financial managers, who are generally more comfortable with tangible results. From the point of view of communications practitioners though, the budgetary restrictions imposed by financial managers are frustrating, as they have examples of high budget campaigns and results to envy.
The financial result of communication has a notional measurement though, known as brand equity. Brand equity is a bit like Wall Street derivatives, incredibly difficult to pin down. Think of it as the quantum physics arrived at by the communication practitioner and the allowances of the financial manager.
At its root, it is the premium over and above actual cost. To illustrate this, consider a tea bag. The tea arrives in tons from somewhere. It is packed into teabags which are packed into boxes and distributed to supermarkets. The model seems fairly consistent across all tea brands. However in the supermarket there will be differences in the price of the various teas.
Economies of scale may be a part of it. Some manufacturers may reduce margins against higher volumes, but this doesn’t entirely explain the difference. Assuming a base value weighted for all factors, some teas cost more than others. This is brand equity.
One component of brand equity will be the cost of packaging, plus a margin on that. Another part of brand equity me lie in the cost of premium space in the outlet and associated display costs. A third part is obviously advertising and public relations. Yet if all those factors are accounted for, there will still be a margin on the price that the consumer is willing to accept.
This margin is derived from the consumer’s acceptance of a vague notion that the tea defines or transforms her or him into something more.
As a simple example consider generic teas versus the Earl Grey styled tea. Set aside the cost of additional processing with bergamot oil and you will find the belief that Earl Grey gives the consumer the belief that she or he is more refined and sophisticated. This is the goal of the communications practitioner. So the costs of the ephemera of design have an impact on the bottom line, and spend either creates that or supports it.
One of the most important factors in this is the distinction between growth and retention. Growth is easily measured, however once growth kicks in, it needs to be retained. The only true measure of a retention strategy is loss, unfortunately. The finance manager has to be aware that ongoing communication maintains relevance and awareness.
The question now becomes, what level of acceptance maintains the awareness. In addition to this, one advisable tactic is to combine a retention strategy with a growth strategy. Consumers will migrate from brand to brand, and incorporating elements of growth communication can mitigate against migrating consumers by replenishing numbers with new consumers.
Internally, the best strategy to achieve the happy medium between the functions of communication and finance is to develop cooperation and understanding between the functions, and induct the communication function into the goals of the business plan.
This is a very basic model. There are other factors that the financial manager needs to bear in mind. Following the instance of Apple, high brand equity can command a disproportionate share value for instance. Taking into account tweaks for component quality Apple commands a massive share value, in spite of the fact that all smartphones offer the same or very similar functionality.
High brand equity also rubs off on stakeholders. If an enterprise has high brand equity, stakeholders will have a greater propensity to accept the needs and decisions of the enterprise or organisation.
There is a massive degree of value in seeking high brand equity, but it can only be achieved with cooperation between finance and communication.