Will changes to CEO remuneration drive a new era of brand investment?

Earth Horizon with UFO or Star by DonkeyHotey, Flickr

The GFC has led to calls for executive remuneration to be overhauled so as to incentivise CEO’s and other senior executives to prioritise sustainable business strategy and profitability over short-term performance.   For instance, bonus and stock options that are awarded over the medium to long-term.

If this eventuates it is likely brand strategy and brand investment will gain new importance on corporate agendas.  As one of Australia’s most respected business journalists, Terry McCrann, has stated: “I think in the modern world ‘brand’ is probably the No.1 issue for a company…Brand management has got to be the No.1 ongoing week-to-week issue for a CEO”.

Viewing brands as assets rather than resources

It is not news to marketers that brands are core assets.  For some businesses they are the key assets.  (Take Coca-Cola, where its brand value is around 40% of its market capitalisation).  And the business benefits of having a strong brand are well researched and recorded.  As Pat LaPointe at Marketing NPV points out, brand equity provides:

  • Selection value – all else being equal consumers are more likely to select a brand with which they have some positive connection.
  • Continuity of cash flow – a loyal customer base that keeps coming back to the brand insulates against the ebbs and flows of the marketplace to ensure smoother cash flow.
  • Prevention of share loss – when a competitor launches a product or service that overleaps a company’s existing offer, strong equity can keep it in the game while it reworks its value proposition.
  • Reducing risk – a strong brand reduces the risk factor investment analysts apply to a business.
  • Shorter sale cycles – in B2B environments senior managers are more likely to sign off a purchase more quickly if they are familiar with brand.
  • Market or product expansion – a stronger brand provides a much more effective platform for expanding into new markets or product categories.

Yet decisions made by CEO’s often treat brands like resources to be exploited rather than assets to be nurtured.  In fact if companies managed their maintenance and capital expenditure on plant and infrastructure the way the managed their brand investments, they would experience constant breakdowns in production and service delivery.

The declining investment spiral

Take the typical corporate approach budget management that is played out annually in many companies.  At the first sign that revenue forecasts may not be met A&P budgets get cut.  And funds are diverted towards what are seen to be more immediate sales boosting activity at the expense of more ‘expendable’ brand building initiatives.

While this occasionally delivers the performance targets for the year, it typically reduces the company’s ability to meet its future objectives.  Frequently this pattern is repeated year on year leading to declines – or at least stagnation – in brand equity, and leaving brands increasingly unable to deliver the goals being set for them.  Often by the time this spiral becomes unsustainable the senior executives overseeing it have moved on and it is shareholders that bear the consequence.   As Philip Kotler notes in Marketing 3.0, this scenario is being exacerbated by the demands of   distributors and retailers for increased trade promotion, creating “a vicious circle” of declining investment, performance and business value.

The CEO’s strategic brand agenda

However, if the mooted changes to executive remuneration occur this pattern should change.  CEO’s will want to leave businesses in better shape to deliver medium to long-term performance.  The levers for this of course vary by company.  But for any consumer facing business a strong brand building program should be a mandatory on any CEO’s strategic agenda.

CEO’s with a focus on future results will want to ensure their brands have:

  • Compelling and well articulated propositions and stories to tell that are embraced by all stakeholders.
  • Engaging brand assets in place, such as an enduring creative idea to set the brand apart in consumers’ minds.
  • A 3+ year plan of initiatives to drive the brand’s momentum in the marketplace.

When he was Chairman of Diageo, the world’s largest producer of spirits, Sir George Bull was reported as stating: “Brand deliberations belong in the boardroom, with all the data, scrutiny, commitment, rigour and accountability given to the key financial measures of a company.”

Maybe moving forward more businesses will be elevating their brand investment decisions to the C-suite.

Image Credit: DonkeyHotey

:Thinkshots | Thinkshot posts are observations and ideas relating to current issues and trends impacting the future of brands, marketing and marketing communications.

Our blog aims to provide thoughts and insights into brand strategy, brand management and brand building for navigating a changing world.

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One thought on “Will changes to CEO remuneration drive a new era of brand investment?

  1. Since this post was originally written there has been further evidence – such as in-depth research by the IPA in the UK – that investment in brand communications pays off far more in the one or two year plus horizons than in the short-term.

    But at the same time companies have become more focused on short-term results. According to the Harvard Business Review, this is not necessarily due to a lack of vision or long-term orientation by CEO and other senior executives. Rather it is due to boards prioritising short-term results in response to shareholder expectations. For more on this see the following HBR posts: Focusing Capital on the Long Term, Where Boards Fall Short.

    It would appear the challenge for strategic brand investment now extends beyond the boardroom to its investors.

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