The conventional wisdom is that brands matter and plenty of studies have explored this theme over the years. This month a new study of 2,717 U.S. senior executives demonstrates that CEO pay drops by 12% when brand equity increases! For non-CEO executives such as CMOs, the drop in pay is more encouraging, a mere 2%.[i]
You could say that increasing brand equity saved companies $1.3 million in CEO pay and $90,000 in CMO pay on the average!
The study was conducted by Prof. Nader T. Tavassoli and a team of researchers at the London Business School and was published in the July – August 2015 edition of Harvard Business Review. It is based on U.S. data spanning 2000 to 2010. Pay was measured using Standard & Poor’s ExecuComp database. Brand strength was measured using BAV Consulting’s consumer surveys. Both are reputable and Nader Tavassoli is a prolific academic and esteemed researcher.
So what can you do, dear CEO or CMO to save your paycheck when your brand equity measures go up and HR approaches you to have a compensation discussion? There are several courses of action:
First, be prepared to discount the rankings! This is the first line of defense. Call into question the league tables that advertising agency networks publish with credible media companies like Bloomberg or Forbes or the Financial Times. These league tables rank your brand relative to hundreds of others, often based on limited information about industry, category, or consumer behavior. There is plenty of criticism of these rankings available online to construct a thoughtful response questioning the validity of the results or discarding these rankings as just good for publicity or PR.
- A comprehensive evaluation of several brand rankings was done recently and can be found here.[ii] The study also lists other critical assessments of league tables by other authors in the past, The work has received quite some attention.
- The terrific Marketing Week commentator Mark Ritson questioned whether what these brand valuation firms do actually amounts to a lot of nonsense given that they widely overestimate the strengths of the brands, as he writes: …there was a possibility that much of what they do was bollocks.[iii]
- You can further your knowledge about this by some of the authors of these league tables responses.[iv]
Second, be proactive and keep all evidence of why brands matter always close by or easily accessible. So that when HR approaches you, you are battle-ready and equipped with the latest studies that prove a brand’s worth in driving sales, creating a price premium and building leverage for brand extensions, let’s say.
There is plenty of research to go by and even more anecdotal information in the form of case studies. I spare you citing research on consumer brands. You just can cite Starbucks, Uber or Coca-Cola as examples of the power of the brand to drive volume, price premium and more, and HR executives can connect with these brands and will understand you. For B2B brands, just a few examples since these studies are harder to come by:
- Brand building consistently generates outsize growth, profitability, and returns.[v]
- A company brand is on par with sales as an influencing factor in B2B purchase decisions.[vi]
- Emotional benefits or brand-related benefits have twice the impact the impact on purchase decisions than functional or product-related benefits in B2B decisions.[vii]
Third, be smart and have a plan. A more comprehensive and more effective response is to address not just HR but also your C-suite colleagues and anyone who might question whether brand impact results are applicable to your industry or company. As you know, there’s always a brand skeptic at the boardroom table.
Prepare by taking a hard look at your existing brand tracker that you have paid for over years now or even decades. Market research delivers the numbers at a regular cadence. They have established a trend line asking more or less the same question over and over again. The first question you should ask is: are you happy with the brand tracker? The answer will be yes, it shows that our brand trends well, and it does not go down much. So, in this sense, you should be happy. But with regard to a clear offensive strategy for when HR hits you up on accepting a pay cut because brand strength has gone up, your existing brand tracker probably does not do the job.
The best course of action is to review your brand tracking results, and really tie the brand tracker to business outcomes. I don’t mean establishing correlations with intent. This is what your advertising agency networks already sell you plenty of. I mean really measuring the brands’ ability to drive business outcomes with consumers or customers.
You may be surprised how much your brand tracker can actually be a powerful tool in building strong brands (and also avoiding you having to take a pay cut). A brand tracker needs to be built into a comprehensive brand performance system. It needs to integrate actual data from the business, it needs to build in social currency measurements, it needs to enable you to make predictions of likely outcomes with consumers so that you can use the tracker to plan for actions.
All this is possible today with a sophisticated brand performance system built on your old brand tracker that your market research supplier continues to update regularly.
If I may recommend, I would take this third course of action right away. Or else, know what you wish for. Increase the strength of your brand, but also be prepared to take a pay cut should you run into an ambitious HR executive. Your choice.__________________________________________
[vi] McKinsey B2B Branding Survey, 704 executives with substantial influence on supplier selection, nearly 20% are buyers of IT-related products/services, 2012
[vii] Corporate Executive Board/Google/Motista Study with 3,000 B2B buyers across 36 brands and 7 categories, 2013