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Book review: Marketing and the Bottom Line by Professor Tim Ambler – Part 1 of 2

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Marketing and the Bottom Line

Professor Tim Ambler from the London Business School is one of the leading authorities in marketing performance measurement and investigating the impact of marketing on finance. In his 2003 book, ‘Marketing and the Bottom Line’, he explores aspects such as marketing metrics, performance of the marketing mix, innovation performance and brand equity.One of the topics analyzed in detail is the concept of brand equity and brand equity measurement. Ambler discusses the confusion around these terms, brand equity being ‘such a big concept that people have difficulty describing it’ (Ambler, 2003: 41), using the metaphor of an elephant.

This metaphor is suggestive in illustrating why top managers have such a difficulty in giving the proper attention to brand equity: ‘one has little perspective of an elephant if one is riding it’ (Ambler, 2003: 43). Just like an elephant in combat, brand equity is the means to gain more and more territory or market share, while it is very easy to ignore or overlook the well-being of the elephant itself.

Aiming to put some light into the confusion around brand equity, the author argues that brand equity is the asset itself, while brand valuation, market share etc. are the metrics that can be used to measure and quantify the asset (Ambler, 2003). While brand equity is mostly associated with dimensions such as brand loyalty or brand awareness and intellectual property assets (i.e. trademarks), why is it so important from a financial point of view? The answer to this question relies in the definition of brand equity from an accountant’s perspective: ‘brand equity is the accumulated intangible asset from past marketing that has not yet been taken into profit’ (Ambler, 2003: 47). This is why many current brand valuation methods are based on discounting future cash flows that are estimated to be generated by the marketing or brand investment.

Referring to brand valuation methodologies, the author makes an analysis of some of the most popular methods used to measure brand equity, such as the BrandAsset Valuator developed by Young & Rubicam or the Brand Evolution model from Ipsos-ASI. However, the author emphasizes the difficulty to measure brand equity in a direct manner, by investigating customer attitudes towards the brand by means of surveys or other similar techniques, as it is quite difficult to look into customers’ minds and ‘count the brand synapses’ (Ambler, 2003: 62). Moreover, such measurements must be treated with caution in terms of accurate data interpretation and subjectivity of the respondents.

The author then proposes the use of proxies that would give a more reliable and complex image of the brand value. These proxies would be of three categories – inputs, intermediate measures and behaviors – and would include aspects such as:

  • Marketing mix metrics, such as amount of advertising (as input);
  • Brand awareness, perceived quality, customer satisfaction (as intermediate measures);
  • Value of sales or customer retention (as behavioral metrics).

An interesting idea that emerges from Tim Ambler’s argumentation on brand equity is that this asset makes the distinction between marketing and sales. While marketing is about investing resources with the expectation that at a future point in time these will generate sales, selling is mostly about rapid gaining of revenues and profits. From this difference of perspectives can emerge one of the most dangerous mistakes in assessing marketing performance – measuring the latent benefits of the marketing investment before its actual impact on the sales figures.

To sum up, we can draw the following conclusions from Ambler’s argumentation on brand equity:

  • Do not confuse the asset (brand equity) with its measurement (brand valuation);
  • Brand valuation should be done with cautions, in order to have a multidimensional perspective and overcome the limits of customer surveys;
  • Timing is vital, in order to accurately capture the impact of marketing investment on brand valuation, sales and the bottom line.

Reference

Ambler, T. (2003), Marketing and the Bottom Line. The marketing metrics to pump up cash flow, Second edition, Prentice Hall, London, UK.

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