Lodish, L. M., Mela, C. F. (2007) If Brands Are Built Over Years, Why Are They Managed Over Quarters [617209]

104 Harvard Business Review | July–August 2007 | hbr.orgCompanies become so entranced with their ability
to price and sell in real time that they neglect
investments in their brands’ long-term health.
by Leonard M. Lodish and Carl F. Mela
HE NUMBERS TELL A SOBERING STORY about the state
of branded goods: From 2003 to 2005, global private-label market share grew a staggering 13 %.
Furthermore, price premiums have eroded, and
margins are following suit. Consumers are 50 % more price
sensitive than they were 25 years ago. In recent surveys of
consumer-goods managers, seven out of ten cited pricing
pressure and shoppers’ declining loyalty as their primary
concerns.T
Dave WheelerQuartersIf Brands Are
Built over Years,
Why Are They
Managed over
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_g _ / / / g g
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106 Harvard Business Review | July–August 2007 | hbr.orgMANAGING FOR THE LONG TERM | If Brands Are Built over Years, Why Are They Managed over Quarters?
Brands are on the wane. For the many consumer-goods
companies struggling against this trend, it’s tempting to
blame the big-box discount retailers. Plenty of anecdotes
support their point of view. Recall what happened to Vlasic,
for 50 years a beloved brand in America’s kitchen cupboards,
when it started discounting its pickles by offering them in
gallon-size jars in the late 1990s. Wal-Mart began selling
the product for an unheard-of $2.99 – a price so low that
Wal-Mart soon made up 30 % of Vlasic’s business. The super-
cheap gallon jar cannibalized Vlasic’s other channels and
shrank its margins by 25 %. When Vlasic asked for pricing
relief, Wal-Mart responded by refusing an immediate price
increase and reviewing its commitments to the line. By 2001,
Vlasic had fi led for bankruptcy.
Wal-Mart and other powerful retailers have undoubtedly
weakened some brands, but a number of consumer-product
companies have done a better job than Vlasic at manag-
ing both their relationships with retailers and their brands.
For example, when Foot Locker cut Nike orders by about
$200 million to protest the terms Nike had placed on prices
and selection, Nike cut its allocation of shoes to Foot Locker
by $400 million. Consumers, frustrated because they couldn’t
fi nd the shoes they wanted, stopped shopping at Foot Locker.
Sales at a competitor, Finish Line, increased. In the end, Foot
Locker acceded to Nike’s terms.
At the core of the differences in how Vlasic and Nike man-
aged their brands is a crucial disparity in strategic perspective.
Vlasic used a short-term sales strategy, focusing on a single,
large channel partner and discounting its product to attract
consumers. In addition, the company reduced advertising by
40% between 1995 and 1998. Nike, on the other hand, posi-
tioned itself for the long term. It maintained strong relation-
ships with a variety of retailers and invested in brand equity,
allocating $1.2 billion annually to its advertising budget. By
setting its sights on a distant horizon, Nike continued to own its customers – and its brand – while Vlasic ceded both
to the channel.
Our research into the role of marketing strategy in brand
performance indicates that companies are paying too much
attention to short-term data and not enough to the long-term
health of their brands. They routinely overinvest in price promotions and underinvest in advertising, new- product
development, and new forms of distribution. As a result of
these shortsighted approaches, powerhouse brands have
been weakened, often beyond recovery. It’s time for changes
in how companies measure brand performance, how they
communicate about their brands to the markets, and how
they oversee brand managers. Those changes won’t happen
without a major shift in thinking at the senior-management
level. Corporate managers have the ability to make these
sweeping changes. Do they have the will?
The Genesis of the Short-Term View
One wonders how manufacturers became so myopic about
their brands. We suggest three factors: an abundance of real-time sales data that make short-term promotional effects
more apparent, thus pushing manufacturers to overdis count;
a corresponding dearth of usable information to help assess
the effect of long-term investments in brand equity, new
products, and distribution; and the short tenure of brand managers. We’ll discuss each in turn.
Data are proliferating. Before the 1980s, brand managers
had to wait up to two months to get sales numbers. Match-
ing weekly discounts to changes in sales was a diffi cult and
error-prone task. That all changed with the advent of store
scanners, which gave managers real-time sales data. These
fi gures made it possible to attribute a spike in sales to a price
promotion. (See the exhibit “Scanner Data Reveal the Imme-
diate Effect of Price Promotions. ”)
Although scanner data showed brand managers the clear
link between discounting and sales, the numbers didn’t nec-
essarily tell them much about whether a given promotion
was profi table. For that assessment, they needed to compare
sales at the discounted price with those that probably would
have occurred without the promotion. To help brand man-
agers predict the level of sales in the absence of a discount, and thus to assess the immediate profi tability of promotions, Leonard M. Lodish (lodish@wharton.upenn.edu) is the Samuel R.
Harrell Professor at the University of Pennsylvania’s Wharton School,
in Philadelphia, and the vice dean at Wharton West, in San Francisco.
Carl F. Mela (mela@duke.edu) is a professor of marketing at the
Fuqua School of Business at Duk e Univ ersity , in Durham, North
Carolina.Companies routinely overinvest in promotions and underinvest in
advertising, product development, and new forms of distribution. As a
result, powerhouse brands have been weakened, often beyond recovery.
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baseline sales models were developed – in part by Leonard
Lodish. (It’s important to note that, contrary to the belief of
many brand managers, baseline sales are estimates – albeit
very good ones – not measures of actual sales. Baseline sales
are estimated by extrapolating from periods when there are
no price reductions or other kinds of promotions.) This new metric further highlighted the short-term effects of trade promotions.
The profusion of data has had major consequences for the
allocation of marketing dollars. According to various sources,
from 1978 to 2001 trade promotion spending increased from
33% to 61% of fi rms’ marketing budgets. This growth occurred largely at the expense of advertising, whose effects play out
over a longer time frame and are thus more diffi cult to mea-
sure. Advertising spending fell from 40 % to 24% of marketing
expenditures during this period. That level has held fairly constant in recent years.
The reallocation of spending away from long-term brand
building and toward temporary price reductions was predi-
cated on a short-term mind-set. Promotions yield an incon-
trovertible boost in sales, known as lift over baseline. This
effect, however, is generally short-lived. To understand how
promotions affect brands in the long run, consider some
consequences of short-term sales approaches.
1978 1982 1981 1980 1979 1 week 100 90 80 70 60 50 40 30 20 10manufacturer’s
shipmentsto the retailer
unit sales to
consumers manufacturer’s
promotions to the retailerWithout Scanner Data…
managers can’t see any meaningful
fluctuations in sales to consumers.With Scanner Data…
managers can see that price reductions coincide
with sharp increases in sales to consumers.
unit sales to
consumers
baseline
salesretail price
per unit Before real-time sales data became
widely available, managers had
a hard time knowing if price promo-tions boosted sales to consumers. For information on retail sales to consumers, they had to rely on periodic retailer in-ventory audits, which didn’t necessarily align with periods during which products were promoted to consumers. The chart on the left comes from this pre-scanner-data environment. It shows, for a pack-aged food product, the manufacturer’s total U.S. shipments to the retailer, the months in which the manufacturer pro-moted the product to the retailer, and aggregate consumer sales on a monthly
basis (the data were extrapolated from a small but representative sample of stores in the United States).
A manager examining this chart sees
that sharp increases in the manufactur-er’s shipments to the retailer coincide, on average, with the manufacturer’s promotional periods (the times when shipments to the retailer decrease during these promotions may be ex-plained by a shortage of the product or by competing promotions from other manufacturers). But even though retail-ers usually pass along a manufacturer’s promotion to consumers – in the form
of a price reduction – a manager hoping to see a spike in consumer sales during promotional periods will be disappointed here. The line representing sales to consumers remains relatively fl at.
The chart on the right was compiled
using weekly, store-level scanner data from the orange juice category. The short-term effect of retail price reduc-tions on consumer sales is unmistak-able. (The relatively fl at line in this chart
shows baseline sales: an estimate of sales volume in the absence of a price promotion.)
Scanner Data Reveal the Immediate Effect of Price Promotions
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108 Harvard Business Review | July–August 2007 | hbr.orgMANAGING FOR THE LONG TERM | If Brands Are Built over Years, Why Are They Managed over Quarters?
•Changes in consumer behavior. Shoppers aren’t naive;
regular sales promotions encourage them to wait for the next sale rather than purchase a product at full price. As more people make purchasing decisions exclusively on price
(a behavior that results in decreased sales when the product
is not discounted), baseline sales eventually decrease and lift
over baseline increases. From a short-term perspective, this
lift makes promotions look highly profi table, so managers
push for more discounts. Eventually, most of a product is
sold at a discount, and profi t margins decrease. The average
brand manager, who believes that baselines do not change
with pricing policy, is left to wonder what went wrong.
In addition, customers often stockpile a product if they
think the price is particularly good. In the short term, this
behavior may give the appearance of an increase in sales;
over the longer term, however, customers simply delay pur-chases as they work through their inventory. In other words,
stockpiling can amplify the immediate effect of a promotion
without increasing overall sales.
•Diluted brand equity. By focusing consumers’ attention
on extrinsic brand cues such as price instead of on intrinsic cues such as quality, promotions make brands appear less differentiated. Consumers, over time, become more price
sensitive, and the product gradually becomes commoditized.
Even stores can be threatened with commodity status. A fac-
tor cited in Kmart’s bankruptcy was the retailer’s reliance on
discounts to attract consumers to the store. When it tried to curtail price promotions, sales plummeted. By communicat-
ing to shoppers that low prices were its main draw, Kmart
had given customers no reason to develop any loyalty.
•Competitive response. When one fi rm increases its dis-
counts, others usually follow suit. As a result, individual pro-
motions increase but overall sales do not, further lowering
everyone’s margins.
Together, these factors can substantially diminish the use-
fulness of sales promotions. In a study of 24 brands in Europe
using data from 2002 to 2005, Information Resources, Inc.
(IRI) found that the total impact of discounts is only 80 % of
their short-term effect (in other words, the effects measured
over the long term turn out to be 20 % less positive than they
fi rst appear). In contrast, the long-term effect of advertising
can be 60 % greater than its short-term impact. Research on
71 brands by a consumer-packaged-goods marketer in the United States resulted in a similar conclusion: Price sensitiv-
ity measured weekly is seven times higher than it is when
the same data are assessed quarterly. This difference can
be ascribed, in part, to the fact that weekly data recognize
increases in purchases but ignore subsequent competitive
price reactions and changes in consumer behavior. Nonethe-
less, the increased availability of short-term data dramati-
cally affects perceptions of the value of promotions. As pro-
motional measurement becomes even more granular (with
daily and hourly data for sales available on demand), this
short-term orientation will probably be reinforced.
Long-term effects are harder to measure. While imme-
diate increases in sales arising from discounts are striking,
the effects of discounts and of other components in the
marketing mix – such as advertising, new products, and
distribution – can be understood only over the long term.
However, because long-term effects are more diffi cult to
measure than short-term ones, few companies pay much
attention to them. Research to help managers take a lon-
ger view is increasingly available. Studies by Lodish and
colleagues found that advertising has a small short-term effect on sales compared with the effect of a price promo-
tion – but a TV advertising campaign that does generate
signifi cant sales increases during the fi rst year will continue
to do so for two more years, even if the ads are no longer
being aired. The revenue arising from the fi rst year of adver-
tising approximately doubles over the subsequent two-year
period. Equally important, if a TV campaign does not have
a signifi cant impact during the fi rst year, it will have no long-
term impact (and roughly half of all TV ads generate no lift
in sales, according to some recent research).
One might conclude that TV advertising is diffi cult to jus-
tify on a short-term basis. We disagree with this view for two
reasons. First, advertisers who test their ads in the market
can isolate the campaigns that will increase revenues over
the long term, since advertisements that are successful in the
short run also have a positive long-term effect. Second, even
campaigns that don’t do much to boost sales can increase
margins by differentiating brands and thus allowing com-panies to raise prices. Indeed, Victoria’s Secret has conducted
a number of regional and local TV advertising tests in which
consumers in some regions were exposed to the ads and others were not. According to Jill Beraud, chief marketing
Shoppers aren’t naive; regular sales promotions
encourage them to wait for the next sale rather than
purchase a product at full price.
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offi cer of Limited Brands, the parent company of Victoria’s
Secret, the brand’s TV ads do not generally increase short-
term sales enough to justify the cost. However, Victoria’s
Secret has linked increases in TV advertising to its ability to
charge higher prices over the long term. The investment in
TV advertising helps build the overall strength of the brand
and decrease customers’ price sensitivity.
Companies have paid even less attention to the long-term
effects of distribution and new products than they have to
the effects of advertising. By coupling recent statistical ad-
vances with fi ve years of data on 25 packaged-goods cat-
egories, Carl Mela and colleagues examined the long-term effects of distribution (the number and kind of stores carrying the product) and of product-line length (the
number of items) and variety (the extent to which
items are distinct). Results indicate that increases in the length and variety of a product line play a major role in
boosting a brand’s baseline sales. Moreover, increased
product-line variety and distribution in leading retailers reduce consumers’ sensitivity to price. Together, these results suggest that increasing variety and high-quality
distribution raises sales and prices in the long run. Also of note, discounts had a deleterious long-term effect on
brand performance.
An example of a company that has considered the
effects of distribution is Lacoste, known for tennis
shirts adorned with a tiny alligator. When the French
company started selling the shirts in the United States
in the 1950s, they became a fashion rage. General Mills
acquired the brand in 1969, and it continued to sell
well. However, in the mid-1980s, General Mills lowered
the price on the shirts and broadened distribution to
include discount outlets instead of adding high-end
stores. The short-term effect was predictable: Sales in-
creased. Yet the brand went from elite stores’ racks to clearance bins and lost its cachet. Lacoste repurchased
the brand in 1992. The company limited distribution to
higher-quality clothing retailers, advertised the brand
through celebrities, and raised prices. A change in se-
nior leadership in 2002 precipitated an even stronger
brand focus. Since that time, sales have jumped 800 %.
However, in the initial years after Lacoste repurchased
the brand, the company’s marketing efforts had little im-
mediate effect on revenues. Had the company assumed a
short-term sales perspective, it may not have been able to
reinvigorate the brand.
Despite the growing evidence that marketing strate-
gies – other than price promotions – yield positive long-term
returns, companies continue to manage their brands with a
short-term perspective. This orientation is exacerbated by
Wall Street analysts who focus on quarterly fi gures to value
fi rms and advise clients. Lauren Lieberman, Lehman Broth-
ers’ equity analyst for cosmetics, household products, and personal care products, gave us a Wall Street point of view:
“We analyze quarterly revenue and profi t performance be-
cause it’s the best gauge we’ve got. But what we really value
is sustainable top-line growth because we feel it is indicative
of higher returns to shareholders over time. ”
Of course this habit of looking chiefl y at quarterly perfor-
mance communicates itself to the companies being watched.
Managers we interviewed at a major packaged-goods fi rm
said that distribution in high-end stores and product in-
novation play the greatest role in increasing sales in the
long term – but they focus their marketing programs and
research efforts on discounting and advertising. When asked
about the emphasis on discounts, they said they are judged
on quarterly sales because investors focus on those numbers,
and that the link between discounts and the current quar-
ter’s sales is transparent. Thus, short-term numbers drive out those that tell the fuller story, leading managers to manage
brands with the data they have, not the data they need.
Brand managers have short tenures. The use of short-
term sales data as a yardstick for brand performance can
interact in unfortunate ways with the tenure of a brand
manager – which is typically quite brief, often less than a
year. Any brand manager who takes a long-term perspective –
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110 Harvard Business Review | July–August 2007 | hbr.orgMANAGING FOR THE LONG TERM | If Brands Are Built over Years, Why Are They Managed over Quarters?
investing in advertising or new-product development – is
likely to benefi t the performance of subsequent managers,
not her own.
In sum, the increasing availability of more thinly sliced
short-term sales data has led to a greater emphasis on short-
term marketing productivity, to the detriment of the long-
run health of brands. Scanner data have been available for
decades now, so it should be easier, not harder, to take a long-
term view of brands. Unfortunately, most companies discard these data, unaware of how they can be used to track a brand
not just over quarters but over many years.
A Long-View Dashboard
In the short term, discounts lift sales over baseline levels.
But baselines and lifts are not immutable: They change in
response to marketing strategy. Those changes signal a long-
term shift in brand performance. Higher baseline sales mean that consumers are buying more of a product at full price.
Think of this as a quantity premium. Whereas the baseline
measure refl ects only the volume sold when a product is
not discounted, the lift-over-baseline measure represents
the difference between discounted and nondiscounted sales.
Smaller lifts refl ect greater customer loyalty because loyals
tend to buy regardless of the discount status. Brands with
loyal customers face less pressure to reduce their prices and
therefore enjoy a price premium. Together, quantity and
price premiums refl ect a brand’s long-term health. If both
increase, demand and margins will be higher – along with
brand equity and profi ts. If consumers pay less of a premium
for the brand and baseline demand is decreasing, then the
brand is headed in the wrong direction – and the fi rm has a
problem.
A C-suite manager can monitor how a brand is doing in
the long term by watching the following dashboard of mea-
sures each quarter:
Baseline sales. Recall that this is an estimate of sales at
a nondiscounted price. This measure refl ects a brand’s
quantity premium.
The changes in baseline sales over months, quarters, and
years and the statistical signifi cance of those changes.
The estimated response to regular prices and price pro-
motions. An increased response to promotions refl ects a
decrease in the price premium a brand can command.•
•
• The changes in response to regular and discounted prices
over months, quarters, and years and the statistical sig-
nifi cance of those changes.
Given the relatively short tenure of brand managers and
the signifi cant reallocation of resources that changes in long-
term marketing strategy entail, someone higher up in the
fi rm must track these measures. Such measures can also be
useful tools for communicating the benefi ts of long-term
marketing investments to a fi rm’s analysts.
To see what insights the dashboard can yield, consider
the example of a large consumer-packaged-goods fi rm that,
in conjunction with IRI, tracked the performance of one
of its beverages from 1994 to 1999. The analysis revealed
a 3% decline in baseline sales – an indication that shoppers
were increasingly buying the beverage only when it was on
sale – and a 14 % increase in price sensitivity over that period.
The overall brand decline was not obvious from the short-
term sales data because the fi rm had increased discounts,
which had led to a 7 % growth in sales during the period. The
damage to the brand became apparent when the company
tried to raise prices in 1999. Consumers’ resistance to paying
full price cost the brand more than $5 million in revenues.
This debacle prompted a review of the brand’s strategy: Man-
agement discovered an 8 % increase in promotion spending
and a 7 % decrease in advertising budgets.
How long-term metrics can redress short-term myopia.
We believe that the dashboard approach can improve brand
performance over the long term in three ways.
First, this view prevents an exclusive focus on short-term
data. If fi rms supplement sales data with data for quantity
and price premiums, they will have a more complete sense of
how various marketing programs affect their brands. Specifi –
cally, managers can establish whether price promotions have damaging long-term effects on brand equity and can there-
fore make more strategic decisions about marketing spend-
ing. Moreover, Wall Street analysts can use data on price
premiums to get a better sense of a company’s profi tability.
Second, brand managers’ performance can be judged on
a combination of quarterly sales and quantity and price pre-
miums. The temptation to discount a strong brand will be reduced, because damage to the brand’s long-term health
will become more apparent. This will encourage managers
not only to take a long-term view of performance but also to •It is hard to see how companies can attain any
insights into brand building with just 52 weeks
of data, yet many fi rms have only that.
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expend some effort determining which factors contribute to
a brand’s strength. In addition, plots of dashboard metrics
over time can serve as early warning systems to alert brand
managers to problems.
Finally – and most broadly – long-term metrics inform a
company’s marketing decisions. Consider, for example, the
launch of a new product. When Kraft introduced DiGiorno
Rising Crust Pizza, thereby creating a high-quality tier in
the frozen pizza category, the company anticipated that the
new product would cannibalize Tombstone, a mid-tier Kraft pizza. A recent study using long-term metrics shows, how-
ever, that the launch of DiGiorno had a consequence that
Kraft did not anticipate: The new product did not just steal
sales from Tombstone but caused its price premium – and
that of all mid-tier pizza brands – to drop sharply. Appar-
ently, DiGiorno made the mid-tier brands seem more ordi-
nary to consumers; as a result, Tombstone was less able to
withstand discounting from other pizzas like it. Ultimately,
the introduction of DiGiorno was highly profi table for Kraft,
but the company, unaware of the effect on Tombstone’s
price premium, may have overstated the profi tability of the
launch. One can easily imagine that in other situations, a
company armed with such metrics might have concluded
that a launch would be unprofi table.
Data and methodology. A company doesn’t truly have a
long-term orientation unless it holds on to its data for longer
periods and carefully analyzes the numbers.
We are astonished by the paucity of longitudinal data col-
lected by the fi rms we visit. It is hard to see how companies
can attain any insights into brand building with just 52 weeks of data, yet many fi rms have only that. Even major data
suppliers such as IRI and ACNielsen discard data after fi ve
years – at the same time that they’re building more capac-
ity and processing power to collect hour-by-hour measures.
Hour-level data can undoubtedly be useful for monitoring
stock-outs. However, it is diffi cult to imagine that local stock-
outs affect market capitalization as much as brand equity,
which often takes many years to build. Interbrand calculates
the market value of the Coca-Cola brand to be $67 billion.
This value developed over decades. It would be fascinating
to study the evolution of Coke’s marketing mix – but in all
likelihood it would be impossible to do so, because the data
have probably vanished.
A detailed look at methods for analyzing long-term mar-
keting results is beyond the scope of this article. The baseline
sales and price sensitivity measures we propose for the dash-
board are relatively easy and available from many data sup-
pliers. Ideally, fi rms should collect and retain these measures
over a long period – fi ve years or more. Other analyses are
more diffi cult. To assess the long-term effect of marketing
strategy on brand performance, one would need to statisti-
cally link marketing policy over years or quarters to price
and quantity premiums. This approach allows managers to –60%–50%–40%–30%–20%–10%0%10%20%policy change: reduce discounting and
increase TV advertisingpercentage
change from previous year
percentage
change from previous year
percentage
change from previous yearlift over
baselinebaseline sales
–40%–30%–20%–10%0%10%20%30%40%50%60%
promotion
spendingTV gross
rating point*retail pricesQ2
2006Q1
2006Q4
2005Q3
2005Q2
2005Q1
2005Q4
2004
Q2
2006Q1
2006Q4
2005Q3
2005Q2
2005Q1
2005Q4
2004
–6%–3%0%3%6% revenue
Q2
2006Q1
2006Q4
2005Q3
2005Q2
2005Q1
2005Q4
2004Through the first half of 2005, most consumers bought bleach only during promotions.How Clorox Rescued Its Brand
So, Clorox reduced its promotion spending and increased advertising.
As a result,
revenue rebounded.*TV gross rating point is a measure of the percentage of household exposed to TV ads.
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112 Harvard Business Review | July–August 2007 | hbr.orgMANAGING FOR THE LONG TERM | If Brands Are Built over Years, Why Are They Managed over Quarters?
gauge simultaneously the long-term effects of marketing
campaigns on price premiums and the short-term effects of
a given week’s discounts on that week’s sales.
An Application
Some blue-chip companies have adopted a longer view of
brand management and are starting to show positive results.
For example, Clorox, a leading consumer-packaged-goods
fi rm, is ahead of the curve in its use of long-term metrics
to steward its brand. Until the second quarter of 2005, the
Clorox bleach product line was in a seemingly endless cycle
of discounting. Almost once a month, the price of a 96-ounce
bottle of regular Clorox bleach was reduced to $0.99 at re-
tail – even cheaper than most bottled waters. The company
had also reduced its advertising spending. From a short-term perspective, the promotions appeared to be quite profi table.
Yet consumers learned to lie in wait for these deals, which
increased short-term sales but decreased baseline sales.
In the midst of this, Stephen Garry, director of advanced
analytics at Clorox, introduced long-term metrics to measure brand performance. The top chart in the exhibit “How Clo-
rox Rescued Its Brand” depicts quarterly baseline sales for
the brand and the projected incremental lift arising from
promotions. Both measures are expressed as a percentage
change from the corresponding quarter of the previous year
to control for seasonal fl uctuations in sales and to protect
the company’s data.
Garry found that before the third quarter of 2005, base-
line sales were low (not depicted in the chart) and decreas-ing. Lift over baseline – which refl ects price sensitiv-
ity – was extremely high (not depicted in the chart)
and increasing. These numbers indicated weakness in
the brand from the perspective of both sales and mar-
gins. In response, Garry initiated an effort to reverse
this trend by reducing discounting and increasing tele-
vision advertising. The changes, implemented in July
2005, are depicted in the middle chart.
As a result of the policy change, baseline sales in-
creased dramatically and lift over baseline decreased.
Consumers were no longer buying from promotion to
promotion but were instead purchasing more volume
at full price. These changes had a positive long-term ef-
fect on the company’s revenues and profi ts by increas-
ing the brand’s quantity and price premiums.
As shown in the bottom chart, revenue (which was
low before the policy change) eventually began to
turn around as a result of the reduction in discounting.
Clorox further indicated to us that profi ts, which con-
tinued to fall in the short term (the third and fourth
quarters of 2005), rebounded sharply in the fi rst and
second quarters of 2006.
Note the implication for the analyst who typically
focuses on short-term metrics such as quarterly rev-enue. In the third quarter of 2005, the analyst might have
downgraded the brand as a result of revenue and profi t de-
creases. Yet these short-term decreases refl ect the time it
takes for consumers to acclimate to the price changes and
respond to the advertising. Clorox, with the foresight and te-merity to monitor the attendant long-term changes in brand health, persevered with its strategy. The ensuing quarters
yielded higher revenues and substantially increased gross
profi ts. Without long-term brand-health measures, the ana-
lyst may have come to a misleading conclusion about the
value of the brand or Clorox may not have realized the frui-
tion of its strategy. Armed with long-term metrics, fi rms and
analysts can assume a longer-term perspective on the brand,
leading to improved profi tability.
• • •
Brand management today is like driving a car by looking
only a few feet ahead. The drivers can change direction
rapidly, but they’re not necessarily on a path that will take
them where they want to go. In the face of an increasingly
fragmented media and powerful retailers, brand managers
cannot afford to be steering their brands in the wrong direc-
tion. Mounting evidence suggests that a short-term orienta-tion erodes a brand’s ability to compete in the marketplace.
Accordingly, managers are well advised to refocus their at-
tention on the basic principles that once made their brands
ascendant.
Reprint R0707H
To order, see page 195.
“Philip, please remind everyone to bring their
Decade-at-a-Glance planners to the
management meeting.”
Teresa Burns Parkhurst
1284 Lodish.indd 112 1284 Lodish.indd 112 6/7/07 9:25:45 AM 6/7/07 9:25:45 AM

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