Risk

Marketing improves earnings stability

Warren Buffett is famous for his ability to identify companies with economic moats – sources of competitive advantage that mean that their earnings stay stronger for longer. He has referred to brand as a moat and a major reason for certain of his investments (Coca-Cola, See’s Candies, Apple, American Express). We talk about this brand as asset concept in the next chapter. The more that a brand is consistently chosen by its target audience, the higher the predictability of its revenues and the stability of its earnings. This requires a specific type of marketing creativity – the ability to keep a brand feeling fresh, relevant and attractive to its existing audiences and new customers. You might think of this as the farmer version of creativity and it is highly valuable for established Brands like Mastercard (“priceless”), Snickers (“you’re not you when you’re hungry”) and Cadbury (“there’s a glass and a half in everyone”) who want to maintain and grow their market share.

Marketing creates alpha upside.

There is a second type of marketing creativity – the hunter version – that is more often top of mind for marketers. This is the disruptive form of creativity that aims to change the way in which a category is perceived so that the challenger brand is perceived to offer new and distinctive value. This is the source of positive earnings surprises (alpha upside) where the marketing investment generates an unexpectedly large return. This is the type of creativity used by Brands like Chobani, Red Bull, and Salesforce. They made us rethink specific categories, as Apple did with their “bicycle for the mind” and “1,000 songs in your pocket” language. Surely each of you has their own examples of marketing miracle$.

Marketers may not love math, but it is a Love Language they must learn if they are to sell their dream budget to the numerically-oriented CEO and CFO. They need to embrace the conceptualization of Marketing as the sowing and harvesting of cash flow. To describe the branding budget as the corn that needs to be sown each year if Finance wants to see a harvest. To point out that if you eat your seed corn (i.e. only do performance marketing), there will never be a harvest.

We recognize that marketers may not be excited by storytelling that involves describing their creative efforts in terms of the six Math of Marketing factors and their effect on the numbers in the Profit & Loss Statement but ask them to remember: Beauty is in the Eye of the Beholder.