Aug 7, 2025 | Analytics, Branding
Investing in building a brand is only done by rational people when they can reasonably expect a return on that investment in the future.
Even with the benefit of hindsight, putting a value on a brand is an exercise in both judgement and maths. Most disregard the maths and invest because the marketing textbook says it is a good idea.
The outcome of having a brand with market power is increased cashflow. Luckily, cashflow is measurable absolutely in the past, and possible within boundaries of probability in the immediate future. The challenge is setting those boundaries of probability.
The purpose of investing in a brand building program is very simply to build incremental future cash flow. To that end, there are only three considerations.
Mental availability.
A brand provides ‘mental availability’ when a potential prospect is in the market. This is a different metric to the more common ‘awareness’ metric, as it implies that when a potential customer starts the process of considering alternatives to addressing a challenge they face, your brand is front and centre. Awareness lacks the second component. Coca Cola has huge awareness, but that does not do you much good when you come into the market for a new car.
Differentiation.
A brand articulates in a prospects mind why they should use you rather than a competitor to address their problem. Differentiation is only useful when it is wrapped around something competitors cannot or choose not to do. To continue the car analogy. For the last few years, a few new car buyers wanted to be seen as a sensible, ecologically aware and able to afford an expensive car that projects a specific image felt an electric car was the best option. Tesla was the only viable choice. That has rapidly changed as competitors finally caught up the technology, are producing objectively better cars at a cheaper price, at a time when the Tesla brand has been tarnished.
Greater value.
The third is the promise to deliver value to the customer greater than they would find elsewhere. Value is not the cost to the customer, although it is a key component of the equation.
Value = Utility – Cost.
As you increase utility, the impact of cost on the calculus of value lessens. Conversely, utility is a combination of quantitative and qualitative assessments every buyer will make, usually without great consideration. In the case of Tesla, the utility of owning one of their cars has been reduced substantially, so the value of the brand has been significantly reduced.
The key question in attaching a value to a brand is therefore the ‘Utility’ it delivers that is convertible into future cash flow.
In the literature, and established practises of those who value brands for a living, there are many ways to do the calculation.
Following are a few of the more obvious.
- Brand attributable cash flow. What percentage of gross margin can be attributed to the brand. Attribution is one of the ‘stickiest’ problems in marketing, so be very careful to separate reality from what you would like to believe. User research is the only way to be as sure as you can be.
- Royalty premium. Brand licencing is a well-worn track. What would you be prepared to pay to have that aspirational brand on your product?
- Price premium, and elasticity. What premium to the market average does your brand attract, and how ‘price elastic’ is that premium? Years ago when Meadow Lea was king of the margarine market, it held a dominating market share at premium prices. This meant that the benchmark shelf price was roughly the same as the alternative brands, usually just a cent or two more, but the promotional discounts demanded by retailers were less, we were able to attract significant added shelf space as there was ‘pantry stocking’ happening when of special, we won the preferred time slots for promotion, we did not need to promote quite so often, and the volume differences between standard sales at standard shelf price and on promotion sales were not as dramatic as competitors. It is not always just the headline price that counts.
- Weighted distribution. What percentage of distribution points that could stock your brand do so. This is mostly a measure for B2C, and it is too often forgotten.
- Customer repeat purchase. How often does a customer purchase your brand compared to others? Repeat purchase, particularly at non promotion prices is the holy grail of FMCG marketing. Price discounting in FMCG has just about destroyed all but the very best brands, so this measure needs to be able to filter out price as the motivation. For example, a house-brand at a standard discounted price to the market may seem to have a high repeat purchase rate, but price can be the determining driver for some consumers. Besides, an expectation of a low price is a lousy brand attribute, and does not contribute meaningfully to brand value.
- Net promoter score. This has become a widely used measure, and sadly, widely misused. Every time I pay an insurance premium, I get an emailed NPS survey asking about my experience. Clearly, the insurance company marketing people are deluded about the drivers of the payment of another insurance premium.
- Mental availability. This is the ‘kingmaker’ measure in many markets. I added it here as it is a measure that is calculatable with market research.
The word ‘Brand’ can mean many different things to a casual observer. To those who understand the word from a commercial perspective it is simply a device that is an indicator of the probability of future cash flow.
Feb 24, 2025 | Analytics, Strategy
The ‘Power law of Distribution’ or ‘Zipf’ distribution, can be used as an adjunct to the much better understood Pareto principle.
There is a consistency to the structure of mature markets. There is a dominating leader, followed by a long tail of smaller competitors. The size rank of an enterprise inversely correlates with its market share.
This is the Zipf distribution at work.
Zipf comes from the study of linguistics, where the probabilities of the frequency of words occurring in a written piece was identified by American Linguist George Zipf in 1935. In summary, the characteristic of a Zipf distribution is that the most common item appears approximately twice as often as the second most common, and three times more often than the third most common, and so on.
For example, the most common word appearing in an English text is ‘the’ which appears twice as often as the second most common word ‘of’, and three times as often as the subsequent word. This relationship has been validated across languages and the sophistication of language use via the free Gutenberg Project, a free database of 30,000 works. The obvious use is in the statistical probability calculations used to generate the tokens that deliver us output from AI platforms. It also powers the language translation capabilities of digital tools.
Zipf distributions occur across many domains beyond language. Income distribution, population sizes, numbers tuning in to TV shows, and followers of so called ‘influencers’.
So, how do you use this when thinking strategically about how to break into a market where you are somewhere in the long tail of a Pareto chart?
It is a problem faced by most businesses in competitive markets. The big players get all the attention, leaving little for the small players to fight over.
The answer: Identify an existing niche and own it, or better still, create your own niche, and be the dominating player in a Zipf distribution for that market segment.
Fragmented markets with a wide range of competitive offers tend to consolidate over time into a small number of players that dominate. Typically, the number one competitor evolves to be double the market share of the next.
This occurred when ‘Meadow Lea’ emerged from the crowd of margarine brands in the late seventies. It became the dominant brand with a market share over 20% (at a premium price) with the next brand in line, ‘Flora’, having a share from memory that never climbed over 8%. Then came ‘Miracle’ margarine maxing out at about 5% before going down the gurgler.
‘Apple’ created the smartphone niche, which then became the whole mobile phone market. They led the emerging market in volume until Google released Android, and allowed anyone to use it. Apple no longer holds market volume leadership, currently they are around 15% volume share, but still hold profitability leadership at about 80% of mobile phone profit share, a clear example of a Zipf distribution.
Which would you rather have?
These ‘Zipf dominators’ do not happen by accident.
They are created by a combination of the identification of unmet demand, creation and/or leveraging of a market niche, and an emotional connection compounded by long term brand building.
When you are the second brand, chasing a Zipf dominator, life is tough. It will take strategic insight, investment, time, and perseverance to prevail. Critically, it also requires a deeply strategic analysis of customer behavior and needs to be able to see the ‘white space’ than becomes ‘Zipfable’
Header George Zipf courtesy Wikipedia
Feb 6, 2025 | Analytics
The Rule of 72 is a ‘rule of thumb’ calculation used to quickly estimate how long it will take for an investment to double in value, given a fixed annual rate of return.
It was first introduced by Italian mathematician Luca Pacioli in 1494, a collaborator of Leonardo Da Vinci. Pacioli is best known as the codification of double entry book-keeping, and the reporting of transactions via journals and ledgers, and outcomes via profit and loss and balance sheet.
His Rule of 72 is widely used in the initial ‘back of the envelope’ assessment of investment options.
The formula is: Years to double = 72/Annual rate of return.
For example, if an investment has an annual rate of return of 8%, it will take around 9 years to double. (72/8 = 9)
The rule can be used to make reasonable estimates of a range of outcomes, such as how long it will take for money to lose value due to inflation, the impact of compounding interest on debt, and evaluating the impact of service fees.
Be careful however, at best the calculations will be estimates, reasonably accurate at rates between 5% and 10%. Outside this range, the accuracy will suffer due to the non-linear nature of compounding growth.
Jan 17, 2025 | Analytics, Branding, Marketing, Strategy
Small improvements in average price drive large improvements in profitability.
Do the numbers.
The normal expectation in consumer markets is that volumes will increase when you promote. Usually they do, but that period is usually followed by a period of lower volume, as what you have done is pull volume forward. This gives those who would have bought at the full price a discount, and rewards those who only buy on price, but who will move on next time to the cheapest on the day.
Brand equity flattens the peaks and troughs of price driven demand, reducing the volatility of price driven volume.
A reduction in the volumes driven by price alone, and an upward to the right movement in average prices paid, act together to drive profitability.
The challenge is to be in sufficient control of your distribution to be able to manage the balance of price based promotional activity often demanded by distribution channels, and investment in brand equity held by the end consumer.
In Australia, the power of the supermarket duopoly together with poor management of that balance by weak minded and brand equity unaware management has resulted in the brand equity of most consumer brands being trashed by supermarkets. It has been replaced by cyclic price promotions, with mandatory participation if distribution is to be maintained.
One of the great missed opportunities to build and leverage brand equity (in my opinion anyway) is the use years ago of Al Pacino by Vittoria coffee.
I have no idea how long the campaign went, or how much they spent, but I clearly remember seeing the ad on TV, and on posters in coffee shops around Sydney. I still buy Vittoria coffee as my preferred coffee, but have been ‘trained’ and rarely need to buy it at the full price of close to $40/kilo, when it is ‘on promotion’ regularly at between $20 and $25. I drink a lot of coffee, so the low price is a pantry stock opportunity.
Unless I am highly unusual, Vittoria has missed out on many millions of dollars of profit over the decade. Heavens, they miss out on several hundred a year just from me!
The potential power of human emotion on the purchase choices they make is huge.
Most fail to leverage it to its fullest extent.
The campaign for Meadow Lea margarine that ran from about 1977 to the mid-eighties is another example. ‘You ought to be congratulated’ not only drove the brand to massive market share leadership at an average price that was a premium to its natural competitors, but it also drove the size of the whole market.
When the dopes who took over the brand failed to recognise the dynamics, and cut advertising, while bowing to retailer pressure, the brand shrunk like a balloon with a slow leak.
Nearly 40 years on, the ‘you ought to be congratulated’ positioning may retain enough equity to be revived. Similarly, I am sure Al Pacino still drinks coffee every day, but may now be a very expensive spokesman.
Maybe not. Worth a try?
Nov 7, 2024 | Analytics, Management, Marketing, Strategy
How do you anticipate the reactions of competitors to your initiatives?
First you must understand them holistically and well. The better you understand them, specifically the strategic and tactical frameworks they work with, the better able you will be to anticipate and respond. You should also reflect on the leadership of your competitors, as their behaviour drives their decision making.
11 questions to ask yourself and your team:
- Will they react at all?
- Will they see and understand the strategic and tactical drivers of your actions?
- Will they feel threatened?
- Will mounting a response be a priority?
- What options will they actively consider?
- Do they have the right mix of resources to respond meaningfully?
- Which option are they most likely to choose?
- How many moves ahead do they look: do they play draughts or chess?
- What metrics do they use that will influence their decision making?
- What are the lead times required to respond effectively?
A final and key question in this volatile environment that is often missed:
- Who might emerge to be a competitor, who could change the dynamics of your market that currently would not be classed as a genuine competitor?
Commercial history is littered with failures to see the possibility of a disruptive new competitor emerging from left field.
Anticipating competitor reactions to your initiatives is a competitive superpower.
It enables you to strike at their weak points, and repel their advances at minimum cost to you, while having them consume resources for no result.
The downside of focusing on competition is that your customers do not see the world as you do. They are looking for the supplier who best addresses their need, solves their problem, or scratches their itch.
Those who spend their time looking over at their competition are risking taking their eyes away from their current and future customers. Lose sight of your customers, and one way or another, you will be eaten!
Oct 14, 2024 | Analytics, Marketing
Against my better judgment, I recently engaged in a conversation about the ‘Law of Purchase Duplication’ with a young marketer. He seemed quite convinced that he was delivering a groundbreaking insight to a marketing dinosaur.
In essence, the law argues that the larger a brand’s market penetration, the more likely a consumer is to purchase alternative brands within the same category. Smaller brands, on the other hand, struggle with loyalty, relying primarily on occasional or incidental purchases when they fall within a larger brand’s ecosystem.
This concept, while not new, remains fundamental to understanding brand dynamics in the marketplace.
Back in the day, we referred to it as the purchaser’s ‘acceptable pool of brands.’
This young hot shot expanded on the advantages of being the dominant brand, and how it becomes self-sustaining through positioning, weight and quality of advertising, brand salience, product accessibility, and consumer perception. While this may all be true, the notion of it being ‘self-fulfilling’ is a step too far.
The reality is that maintaining market dominance requires constant effort and adaptation to changing consumer preferences and market conditions.
During our discussion, the topic of brand loyalty surfaced, leading to several useful questions about what brand loyalty truly means in today’s fast moving consumer markets:
- Does it mean that no other brand will ever be purchased under any circumstances?
- Does it only matter when a preferred brand is unavailable?
- Is there a sliding scale of brand loyalty that correlates to price differences?
- How does this law of duplication apply to sub-categories within the same brand?
- What are the varying impacts of demographics and psychographics of consumers?
- Could brand loyalty simply be a combination of awareness and preference, disconnected from actual purchasing behaviour in-store?
These questions highlight the complexity of consumer brand loyalty and the need for an understanding of the nuanced drivers of consumer behaviour in every market.
Over the years, I’ve been intimately involved with several instances where this so-called ‘Duplication of Purchase Law’ played out in real-world brand battles:
Meadow Lea Vs all comers. The rapid ascent of Meadow Lea margarine in the late 70s and early 80s was astonishing. The brand evolved from one of many competitors to a market leader, at its peak dominating with three times the market share of its nearest rival. Although it was driven by exceptional advertising, there were several alternative brands consumers could have turned to. However, consistent availability, competitive pricing, and in-store sampling helped cement its position. These instore marketing activities supported the brand advertising that built long term brand salience and loyalty.
Yoplait Vs Ski. The yogurt wars between Yoplait and Ski during the 80s and 90s are another example. Yoplait initiated huge market growth by making yogurt mainstream when it launched. This left Ski, the previous leader, floundering and scrambling to recover. Both brands became largely interchangeable despite product differentiation. Yoplait strawberry was an acceptable alternative to Ski strawberry, and vice versa. However, this dynamic didn’t extend evenly across other flavour categories or packaging formats. If Ski strawberry was unavailable, Yoplait strawberry was more likely to be purchased than an alternative ski flavour. These inconsistencies across the product categories and pack sizes, highlighted how nuanced and context-specific the Duplication of Purchase Law can be.
Having reliable data from the likes of Ehrenberg-Bass provides the statistical credibility necessary to sell what to date have been qualitatively understood wisdom, to the boardroom. However, it’s crucial to remember that this qualitative wisdom, built over time, should never be discarded or obscured by academic multi-syllable descriptions or management jargon. One-dimensional data cannot replace the wisdom accumulated by thoughtful marketers over time.
