Chances are you have heard of the Higgs Boson, an elusive elementary particle that physicists have spent the last fifty years and billions of dollars to find. Reports of its potential discovery have captured headlines around the globe. If verified, not only will it help cement our mathematical understanding of how the universe works, but will set the trajectory for future technological advances.
What has this got to do with the marketing discipline? For the last fifty years we have been dealing with our own elusive particle, an accurate metric that quantifies the financial value a brand provides. Without this the mathematics is incomplete for financial forecasting, planning, justifying marketing investment or improving marketing return.
But 2015 may be the year that this changes due to the work of the Marketing Accountability Standards Board (MASB). This group of marketing and financial practitioners and academics has been pursuing aggressive “game changing” projects to not only create general principles and methodological standards for brand valuation, but to prove them out in brand “trials” that serve as practical examples of their application. Based on prior research, MASB chose the MSW•ARS brand preference measurement approach as the cornerstone of its two-year long brand investment and valuation trials. The first installment of this research was presented at the group’s summer summit in August and the initial results have been making waves in industry news.
Mathematics of Brand Preference
Just like physics equations hinted at the existence of the Higgs Boson, so did the equations of marketing hint at brand preference. For years marketers have dissected sales data and realized that maintaining market share and price point were critical to maintaining revenue streams.
But this just pushes the question a level deeper to: What drives a brand’s unit market share? Economic theory provides two of the key elements, price relative to competing products and distribution. Simply put, on average the less costly in terms of time and money a product is to obtain, the higher the demand for it will be. But people are not economic robots. They will oftentimes choose a more costly option if they feel that it will provide them a decisive benefit, even if it is a purely emotional one. Thus it is the breadth and strength of consumers’ preference which set the base level for a brand’s unit market share with distribution and relative price acting as modifiers to it.
So how effective is brand preference in explaining a brand’s unit market share? In the initial MASB trial analysis, six months of brand preference, unit share, price premiums, and distribution were analyzed across twelve participant categories containing one hundred nineteen brands. The categories examined included a diverse mix of product types; prices from thirty cents to thirty thousand dollars, impulse buys to deliberate purchases, consumables to durables. Across these categories brand preference accounted for seventy-one percent of the differences between brands while effective distribution and price premium added another fourteen percent.
With this milestone achieved the next step is already underway, incorporating brand preference in financial and marketing forecast and planning applications. More details on these endeavors will be forthcoming in future installments.
Please contact your MSW●ARS representative to learn more about how brand preference is embedded throughout all of our research solutions.