Why Brand Teams Need to Stop Pushing Brand Equity as an Asset

Most brand teams are constantly fighting for investment. Their lives would be much easier if they stopped pushing brand equity as a long-term asset when it is becoming more like the cost of goods sold.

Most brand teams are constantly fighting for investment. Their lives would be much easier if they stopped pushing brand equity as a long-term asset when it is becoming more like the cost of goods sold.

It’s almost Independence Day 2019, and I conducted a small consumer focus group session. Actually, it was a small group of friends, gathering to celebrate America, and we ended up talking about old brands.

Brand Equity and ‘Whatever Happened to … ‘

The topic began with WHT, or “whatever happened to … ?”

My candidate for WHT was Fruit Stripe gum; which, it turns out, is still alive and undergoing a small revival. As the conversation drifted toward more recent times, we started talking about the more recent troubles of iconic retail brands, like Barnes and Noble, Sports Authority, and Toys”R”Us.

Because the group consisted mostly of GenXers, there was strong nostalgia associated with these brands, with many happy firsts: first soccer ball, first video game system, first flirtation with a stranger over coffee while trying to look intellectual. There were such emotions and nostalgia, it made me wonder why these businesses had to close or severely reduce their footprint.

Yes, Amazon is the direct reason, in most cases, and there is a new trend to vilify it for killing these now-nostalgic brands. Let’s not forget, however, that B&N and Borders were once considered villains, running the local bookstore out of town. We also rarely hear about the villainy of Walmart and how it destroys local business. In fact, I was surprised to see that Walmart was now listed as a highly trusted brand by GenZers (18 to 21 years old). It is hard to Imagine the day when we will be nostalgic for Amazon; but if history is any indicator, that day will come.

Why Good Brands Go Bad

It is important to understand why we miss some brands when they are gone, but do not come to their aid when they are dying.

I believe the answer is that positive brand associations have a diminishing effect on brand survival. For example, there was a fast food joint I used to frequent and think of fondly when I was a child. Hoping to share that moment with my kids, I took them there. To put it mildly, they were less than impressed. Our family has been trying to eat fresh and healthier food for some time now, and we are part of a growing trend. Simply put, my kids could not relate to the greasy, yummy, and cheap goodness of my youth. I expressed shock, disappointment and called them bourgeois food elitists. This got me sympathy and pity, but not an ounce of guilt on their end. Later, once I got over the hurt, I, too, had to admit it was pretty bad food. This was my last trip to this joint.

Good brands solve current problems, delight customers, and address unmet needs, which build positive associations and create brand affection. However, like any relationship, fond memories do not guarantee that the relationship survives. Brands that survive can no longer rest on brand equity; rather, they are constantly investing in building and maintaining it.

This has implications for how marketers position the brand as an asset in the company.

How Brand Teams Position the Brand as an Asset

Most companies think of brand equity as a long-term asset. While brand equity is not a recognized asset under GAAP rules, brand proxies such as goodwill, brandmark, and trademarks are recognized as long term assets. Long-term assets are investments a company makes which benefit the company over the long term such as property, plant, and equipment and include other assets such as patents, licensing agreements and bonds. This classification makes sense since strong brands used to stand the test of time and had equity with staying power.

However, the new business environment sees new brands come and go and once esteemed brands die off every day. In this environment, there seems limited long-term value to brand associations and positive memories.  More and more, brand equity is reflecting the characteristics of short-term assets, like inventory or working capital, which needs to be constantly replenished. When a company fails to adequately invest in inventory, sales drop quickly. It seems like the brand is drifting in that same short-term direction.

When making the case for brand development, perhaps we marketers need to change our perspective. Generally, the marketing narrative placed brand as a long-term investment because the costs are so high, and the return was measured over a long period. At one point, this argument seemed appropriate. However, today it seems like there is very little long-term component to brand equity. Especially as branding is becoming more aligned with experience and operations and less with advertising. As a critical component of every customer interaction, we may need to understand that brand is becoming part of the cost of goods sold. This means companies should invest in branding frequently like they invest to have enough inventory or working capital. Only then will brand receive the investment flows it needs to survive in today’s market.