My ponderings on this topic were sparked by reading a document titled ‘Long-Term Effects of Marketing Actions’ by Michael Hess, hosted on WARC. The first paragraph contained the following sentence,
“Long-term effects are generally measured through increased brand awareness, brand equity, increased loyalty or higher price elasticity.”
As I read the words “higher price elasticity” they jumped out at me. Higher? Why would you want your brand to have higher price elasticity?
Higher elasticity means that discounts generate more volume but at a lower margin, but equally higher elasticity means that volume declines more strongly when the brand tries to raise its price. Surely what you really want is lower price elasticity so that the influence of price on sales is decreased, and volume over time is more stable and more profitable?
I cannot help but wonder if the use of “higher” was one of those unfortunate changes made during the editing process. Be that as it may, the key point is that all we can to anticipate positive long-term effects is look at today’s metrics and extrapolate forward. But that is fraught with difficulty unless you have some proof that the chosen metrics do relate to future growth.
One output of the Meaningfully Different Framework is an equity summary we call Potential, which is designed to anticipate how likely it is that a brand will grow. We report Potential as a probability of growth because there is no guarantee that today’s potential will be realized in future. Potential is exactly what the name implies; it is a latent strength. To realize a brand’s potential the marketer must extend the reach of the brand to new customers and do so in a way that is more compelling than the competition’s marketing efforts.
The only other way to anticipate whether a brand is likely to grow is to look at trends over time and assume that they will continue (which is a risky assumption if the brand does something different or the context changes). But what trends should we look at? Overall sales may increase simply because of price discounting which could undermine the future strength of the brand. Far better to look at the trend in base sales – the proportion of sales not dependent on short-term marketing activities – and see whether that is increasing or decreasing. To my mind a brand that is growing base sales faster than total (provided the total is growing) is one that is becoming stronger over time. And a brand that was lowering price elasticity over time at the same time it was growing sales would be even stronger.
by Nigel Hollis