Brand Mix

That's the title of an article published recently in Knowledge @ Wharton referring to a paper of the same name written by Leonard Lodish. Lodish admits he is partially to blame for the heavy emphasis on in-store promotions in the 90s because he was one of the first to realize that scanning data would allow companies to accurately judge the effectiveness of price promotions.

His paper shows how trade promotion has increased from 33% of marketing budgets to more than 60% in the past 25 years and talks about how this has made it more difficult for brand managers to maintain premium pricing.

Speaking as someone who worked as a brand manager (with Nestlé) in this period, I can confirm the difficulty in resisting the siren call of short-term sales lifts. It was very tough to fight the hard data of a promotion payout analysis vs. more nebulous arguments about building brand equity.

One compounding issue at Nestlé was that brand managers had P&L reponsibility and needed to deliver sales and profit targets. Since brand equity is not on the P&L it was all too easy to use it as a sort of piggy bank to be raided to make the numbers. Sometimes advertising spending would be cut as early as the first quarter to make up for profit shortfalls.

The paper's conclusion is that companies need to balance short term measures with long-term metrics to get a more complete view of brand performance. "We believe this would offer a major step to redressing the weakening state of brands evidenced in recent years, increasing our understanding of how strong brands can be built". Quite so.