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Marketing State of the Union


June 2002

A SPECIAL REPORT by Interbrand


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FOREWORD
In the spring of 2002, Interbrand conducted an online survey whose purpose was to measure
marketers’ spending on marketing and branding-related initiatives, and to gauge their
perceptions on how to build strong brands. This was a follow-up to a survey we completed in
October of 2001, whose results reflected early reactions to the economic downturn, but did
not reflect the impact of Sept. 11 on marketing spending. This report, Marketing State of the
Interbrand asked marketers
Union 2002, is the compilation of the survey results.
what impact events of the
past year have had on their
For this survey, Interbrand collected data from 280 marketers who have decision-making
brand-building efforts
responsibility regarding the disposition of their marketing budgets. The good news is that the
in 2002.
majority of total participants (52 percent) report that their marketing budgets have either not
been impacted by the economic slowdown, or have in fact increased, thereby attesting to the
The answer: Investment in
importance of brand-building for most organizations. And, for U.S. respondents, which make
your brand now will pay
up 52 percent of the total, exactly half report the same. In fact, only nine percent of total
healthy dividends later.
respondents (12 percent U.S.) report budget decreases out of proportion to other cuts made
within their organizations.

We also found that while advertising remains marketers’ single biggest expense, it is
considered a less important component in building a strong brand, ranking second behind
brand strategy. However, only about a quarter of respondents’ budgets are allocated to areas
that are brand specific, such as corporate and product brand development, brand portfolio
restructuring, and the like.

An area of significant change versus the 2001 survey is that internal branding is now ranked
third in importance, moving up from seventh. We believe this reflects a refocusing of brand
priorities that is substantiated by the respondents’ comments. Many say that recent economic
and political events have underscored the need for an organization’s messages to reflect its
values and culture. Employees are an integral part of this mix, with 80 percent of all
respondents viewing employees as either very or somewhat important to brand-building.
To date, however, our respondents indicate that very little investment is made in internal
branding initiatives.

Those who have experienced a shift in the focus of their marketing efforts report an
increased emphasis on brand building for the long-term, strengthening existing brands in
their portfolio, (as opposed to building new ones), segmenting their audiences in a more
sophisticated manner, and using softer communications messages. Many marketers are also
Marketing State of putting renewed focus on customer service, emphasizing what is important to the consumer,
the Union particularly since personal values have been re-examined by many people. They advise
helping consumers identify product and services as fitting into their value system and
The information in this priorities.
report is intended as
general information only. Perhaps most important, our respondents clearly indicate that branding ROI can be
Copyright 2002 Interbrand measured. There is also overwhelming agreement with the idea that proper investment in
Corporation. All rights brand-building can optimize a company’s future earnings (91 percent), and that the return on
reserved. this investment can be measured (82 percent), despite some difficulty in quantifying
intangibles.
Additional copies of this
report can be obtained
Interbrand believes the results of the survey reflect an understanding on the part of
by calling
marketers and their senior management brand champions that brands are a vital, measurable
212/798-7513.
asset, and that resources allocated to marketing and branding is an investment that will yield
www.interbrand.com
significant long-term benefits.

www.brandchannel.com
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ABOUT Interbrand
Interbrand (www.interbrand.com), the leading brand consultancy, combines the rigorous strategy and analysis of a management
consulting practice with the entrepreneurial and creative spirit of branding and design. The company offers a comprehensive
array of consulting services that guide clients in the creation, enhancement, maintenance and valuation of their most valuable
asset — their brands. Founded in 1974, Interbrand has offices in 34 cities in 22 countries around the globe and clients from
among the most respected businesses in both the traditional and new economies. Interbrand’s areas of expertise include:

Brand Strategy: An independent, expert view is invaluable when assessing complex branding issues such as the design of a new
brand architecture, the repositioning of an existing brand, the reinvigoration of an under-performing brand or the development
of a new brand to suit a particular market need. In all of these instances, our teams of strategic consultants work in partnership
with clients to produce focused and actionable solutions. The results help yield the highest return on a company’s brand assets.

Brand Valuation: Stock markets increasingly confirm that brands and other intangibles are a corporation's most valuable
assets. Brand valuation is a unique tool that quantifies the economic value of a brand. It is critical to marketing investments
and allows management to plan and assess the impact of their strategies. The first company to ever publicly put a value on a
brand, Interbrand has developed the most widely endorsed brand-valuation methodology. To date, we have valued more than
2,500 brands worldwide.

Corporate Identity: A well-orchestrated corporate branding system is an invaluable communications tool in today’s complex
world and does more than just identify a business or organization — it acts as an indication and endorsement of quality, value
and reliability. A corporation's established assets, all visible points of public contact, differentiate it from competitors.
Interbrand believes that corporate identity is a powerful strategic weapon, one that promotes an understanding of the
corporate purpose and differentiates corporations and their products in an increasingly competitive marketplace.

Internal Brand Alignment: A corporate brand stands for the relationship that it has with its employees, as much as it represents
the relationship it has with its customers through its product and service offerings. Brand building is an inside-out exercise,
one that needs to engage the organization first before external messaging can be truly credible. Brand stewards should drive
initiatives that close the gap between the actual and perceived, and focus on brand building within their organizations in order
to communicate their values to an external audience. Our strategic consultants work with clients to align the organization and
its operations around brand values to bring to life the brand promise through the four critical success factors: senior
management stewardship, responsibility and accountability, aligning business and brand strategy and ongoing performance
measurement and feedback.

Naming: A name is the foundation of a successful brand and can be an asset of enormous value. Effective names project the
personality of a product, service or company and should inspire the quality and integrity of what they represent. Successful
brand names also should be relevant, pronounceable, memorable and free of negative connotations. Interbrand pioneered the
field of name development and has developed thousands of effective, motivating names for scores of industries around
the world.

Packaging: Packaging puts a face to the name of a brand. The right design can leave an indelible impression, encouraging an
initial purchase and fostering the emotional link that underlies consumer loyalty. A package must be a powerful selling tool in
itself, standing out from the clutter on a shelf. A brand’s packaging must instantly communicate its positioning and product
benefits, and reinforce that message after the purchase so that the brand becomes a mainstay on the consumer’s shopping list.

Research: All decisions involve some level of risk. Clearly defining and quantifying that risk is the key to effective decision-
making. Interbrand uses research extensively and commissions both qualitative and quantitative studies for clients. From the
choice of a new name or package design to the repositioning of an existing brand, or the introduction of a new one, our experts
help clients avoid expensive mistakes through research.

3D/Evironmental Design: Environments are one of the best opportunities a brand, corporation or institution has for communi-
cating its identity. By developing an environment consistent with the brand message, a brand can provide its customers with a
predictable and familiar experience in all locations — from retail environments and tradeshows to the corporate environment.
Interbrand’s environmental design practices employ state-of-the-art technologies to design brand environments in a three-
dimensional world, including the design of interactive media and virtual environments.
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INTRODUCTION
Survey Methodology
The survey was conducted online during the spring of 2002, and Interbrand received responses
from 280 respondents, both in the U.S. and internationally. The goal of the survey was to
understand the impact of the economic slowdown on spending for brand-related and other
marketing activities across different industries, and to gauge marketers' perceptions
regarding the importance of the role of branding.

Profile of Survey Participants


In addition to being The majority of respondents work in marketing/communications and brand management/
responsible for their strategy functions. Of the respondents, 77% are in mid- to senior- level management
companies’ brand (directors, senior directors, associate VPs, VPs), and 18% are C-level executives. The majority
strategies, most work for companies with up to 1,000 employees (53%), with a significant percentage of
respondents are also respondents representing companies of over 5,000 employees (24%).
charged with tracking and
evaluating the effectiveness 57% are with companies with annual revenues of up to $500 million, with also a very
of their marketing efforts. significant percentage of respondents coming from companies with revenues of over
$1 billion (22%). Respondents also represent a broad range of industries, including
professional/financial services (21%); consumer packaged goods (13%), and management
consulting/creative agencies (20%). The remainder are divided among IT/telecommunications
(10%), media/publishing/entertainment (10%), pharmaceutical/healthcare (5%),
manufacturing/transportation (6%), with yet others representing the education, not-for-profit,
and hospitality sectors.
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KEY FINDINGS
The respondents indicate that the majority of their companies (71%) spend less than 10% of
their revenues on marketing and branding initiatives; 34% devote less than 3% of revenues
to marketing and branding. Many of the professional services, information technology and
financial services companies are in this category.

Companies in the consumer packaged goods industry invest the most in marketing and
branding, allocating between 5%-15% of their revenues to their marketing budget.

Percent of Revenues Spent on Marketing & Branding Initiatives

Do Not Know 16%

More than 20% 3% Less than 3% 34%

Between 15% and 20% 4%

Between 10% and 15% 6%

Between 5% and 10% 16%

Between 3% and 5% 21%

The Impact of Recent Economic and Political Events on the Branding &
Marketing Budget — US & International
For the majority of respondents (52%) the branding/marketing budget is either not affected
at all (27%) by the economic slowdown or has indeed increased (25%). This shows that
branding/marketing is still a priority to most organizations, and in some cases companies
place even greater emphasis on it now, more than the past. So far, only 9% of respondents
say their branding/marketing budget has decreased disproportionately to other budgets in
their organization. Industries reporting the greatest declines are telecommunications,
consumer packaged goods and financial services.
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KEY FINDINGS

30% Total
27% 27% 27%
26%
US
25% 23%
International
20%
20%
16%
15% 14%
13%
12% 12%
11%
10%
10% 9%
7%

5%

0%
No change Decreased, but Decreased Increased, but Increased
comparably to other more so than comparably to other more so than other
budgets in the other budgets in the budgets in the budgets in the
organization organization organization organization

“We are focusing less on Shift of Focus in Marketing & Branding Efforts as a Result of Recent
new brands and are instead Economic and Political Events
continuing to build the ones While slightly more of the respondents (49%) report no shift in their marketing and branding
we currently sell.” efforts, an equally large portion of people (46%) believe they have actually experienced a
shift in focus. This is especially true for U.S. respondents, whereas the international audience
is more evenly split. The results are consistent across the industries. Generally speaking,
there is a new focus on brand building as opposed to sales, with more intense focus on
strengthening current brands, not on building new ones, as in the following:

“We are more focused on core brands vs. new business.”

“We are focusing less on new brands and are instead continuing to build the ones we
currently sell.”

There is a much narrower and sophisticated audience targeting:

“We have tightened our focus on core clients and prospects and increased our expenditure
on finding new prospects.”

Marketing messages have also changed, both in terms of tone and scope:

“The marketing collateral has become softer.”

“Our creative messaging and overall style is much softer and more lighthearted than our past
communications.”

“More niche marketing as opposed to broad cross-border campaigns.”

Impact of the change


Although a portion of the respondents (32%) was not sure whether this focus shift is long-
term or short-term, many agree it is a long-term shift (41%). This is especially true for U.S.
respondents (45%), whereas the international respondents appear to be more unclear about
the impact of the shift.
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KEY FINDINGS
Allocation of Marketing and Branding Budget
On average, more than half of participants’ budgets (52%) is allocated to traditional
marketing activities, such as advertising, promotions and public relations.

Brand Portfolio Structuring


(brand/name architecture) 5% Internal Communications Activities 4%
Corporate Image Product Packaging Design 3%
(name, logo, etc.) 6% Legal Protection
Other 6% (trademarks, patents, copyrights) 2%

Market Research 7%

Product Brand Development Advertising 26%


(long-term strategy, positioning) 7%

Corporate Brand Development 8%

Public Relations Activities 12% Promotions/Merchandising 14%

More than half of budgets


(52%) is allocated to Slightly over a quarter (26%) of the budget is allocated to areas that are more brand
traditional marketing specific, such as: corporate brand development (8%), product brand development (7%),
activities, such as corporate image (logo, name, etc.) (6%), brand portfolio structuring (5%). On average, 7% of
advertising/promotions, the current marketing/branding budget is allocated to market research, which represents a
merchandising and drop from last year (11% of total marketing budget in 2000). The current budget allocations
public relations. are similar for participants in the U.S. and abroad, except that U.S. companies place greater
emphasis on merchandising and promotions, while international companies have a slightly
greater portion of their budget allocated for corporate brand development and corporate
image.

The Most Important Components of Building a Strong Brand


Given the significant percentage of their budgets our respondents spend on advertising, it
was interesting to discover that when asked to rank various components of brand-building,
advertising ranked second, following brand strategy. Brand strategy is considered to be by far
the most important component of building a strong brand (92%), followed by advertising
(75%). Indeed, it is brand strategy that sets the tenor for all marketing communications
initiatives.

Internal branding is now ranked third (52%), representing an area of significant change
versus the 2001 survey, where it was ranked seventh. We believe this reflects a refocusing of
brand priorities that is substantiated by the respondents’ comments. Many say that recent
economic and political events have underscored the need for an organization’s messages to
reflect its values and culture. To date, however, our respondents indicate that very little
investment is made in internal branding initiatives. Brand identity (51%) is considered about
equal in importance to internal branding.
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KEY FINDINGS
100% 92%

80% 75%

Brand Strategy is ranked as 60% 52% 51%


the most important 44%
41%
component in building 40%
27%
strong and enduring brands. 20% 18% 16%
20% 14% 12%
9%

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3% 8% 11% 22% 57%


International
Employees are increasingly
viewed as brand
1% 9% 7% 22% 62%
ambassadors, and essential US
to building strong brands.

2% 8% 9% 21% 59%
Total

0 20 40 60 80 100
Not at all important Not very important Fairly important
Somewhat important Very important

The importance of employees in brand-building


The majority of participants (80%) consider employees very/somewhat important in brand-
building; this is consistent across geographies. This supports the current emphasis on
internal branding in driving brand strength, and could represent an area of interest and
investment to marketers and senior executives.

The brand champions


Marketing professionals (60%) are viewed as the primary brand champions by most
respondents. Executive (45%) and senior (38%) management are seen as secondary
champions of the brand.
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KEY FINDINGS
Measurability of Brand
There is overwhelming agreement with the idea that proper investment in the brand can
optimize the company’s future earnings (91%) and that the return on this investment can
actually be measured (82%). At the same time, most respondents agree that the intangible
nature of brands makes them difficult to quantify (79%).

91% 4% 5%
A company’s future earnings can be optimized by
proper investment in its brand.
63% 19% 18%
Brand strength can be measured as a corollary to
investment in brand.
7% 88% 5%
The intangible nature of brands makes them
impossible to quantify.
79% 19% 2%
The intangible nature of brands makes them
difficult to quantify.
82% 11% 7%
The return of branding/marketing investment
can be measured.
50% 45% 5%
The value of brands can be measured in the same
way physical assets are measured.
0 20 40 60 80 100

True False Do Not Know

Information that would be useful in convincing senior management of the


importance of investment in brand

Correlating brand strength measurements with 61%


company’s financial performance in terms of
58%
stock price, P/E ratio and market valuation
59%
Correlating investment in brand with earnings
and cash flow 58%

Correlating investment in brand with company’s 52%


financial performance in terms of stock price,
46%
P/E ratio and market valuation

Correlating investment in brand with awareness or 51%


familiarity measurements 45%

Correlating investment in brand with general 36%


favorability measurements 41%

6%
Other
7%

0 10 20 30 40 50 60 70
2001 2002
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KEY FINDINGS
Although most respondents share the view that the brand and the investment in it is related
to the financial performance of the company, they indicate a need for concrete information to
prove this correlation to senior management. Consistent with last year’s findings, the most
valuable information is data, specifically correlating brand strength or brand value with the
company’s financial performance (61%), and correlating investment in brand with earnings
and cash flow (59%).

Industries Affected by Recent Economic and Political Events


Not surprisingly, the industries that our respondents consider most affected by the recent
economic and political events are the following: airlines (90%), advertising and PR agencies
(67%), and the hospitality industry (57%). The industries that are not considered to be
heavily impacted are the following: consumer packaged goods (12%), Market research
suppliers (14%), education (9%), healthcare (7%), and pharmaceuticals (6%).

Advice given to affected industries


“Don’t forget about your
brand, it’s the most Overall, respondents have a positive outlook on the current economic climate and on the
important asset you have. future of brand-building. They believe marketers should be patient and to have strong belief
Strong brands can weather in the power the brands hold. Respondents urge marketers to leverage this to help these
this storm.” companies get through the rough times:

“Invest in your brands. This is a cycle and you want to have a strong brand when we come
out of this slump.”

“Don’t forget about your brand, it’s the most important asset you have. Strong brands can
weather this storm.”

“Maintain investment in branding/marketing when your competition is cutting back.”

“See marketing and branding as an investment for the future, rather than a non-essential
‘nice to have if you can afford it’ extra you can cut to save money today.”

Importantly, many marketers are also putting renewed focus on customer service,
emphasizing what is important to their consumers, particularly since personal values have
been re-examined by many people. They advise helping consumers identify product and
services as fitting into their value system and priorities.

“Invest in understanding how the attitudes of consumers and businesses have shifted.”
“Build one-on-one relationships with customers, and re-focus on the core of the business.”

“Return to the basics of what your organization does best and to your best customers.”
“Get back to the basics. Focus on your core business and what it is that you are truly
known for.”

Copyright 2002 Interbrand


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Interbrand
Creating and managing brand value™