The Lump Left Over
A little while back Paul Tyndall (See: Why don't the same rules apply) asked the question about ROI calculations/justifications for new media, and by extension, marketing investments in general.
I think another question needing to be asked is how do we go about measuring the ROI of goodwill. Accounts don't do a good job of measuring goodwill . Its usually the balancing figure reflecting the difference between assets and liabilities on a balance sheet - not something with actual metrics behind it.
Walter Schuetze (former SEC Chief Accountant and FASB member) derisively characterizes reported goodwill as "the lump left over", at least according to this accounting blogger.
FASB:Summary of Statement No. 142
Goodwill and Other Intangible Assets (Issued 6/01)
"Analysts and other users of financial statements, as well as company managements, noted that intangible assets are an increasingly important economic resource for many entities and are an increasing proportion of the assets acquired in many transactions. As a result, better information about intangible assets was needed. Financial statement users also indicated that they did not regard goodwill amortization expense as being useful information in analyzing investments."
Leaving the accountants alone for a minute, it seems to me that whenever there is a customer acquisition program - the enterprise is more willing/prepared to invest in what it hopes will be the start of a long-ish profit stream than it is in re-investing in its brand. I say hopes - because there are no guarantees the brand overtures will yield any results and I also exclude the activities the brand engages in to solicit a sale..
Most brands face their problems later in life - when retention efforts require investment to bolster the brand for self supportive brand evolution reasons, for customer win-backs, to offset the competition's acquisition drives etc...
There are many different ways to come to terms with this issue - as it mostly resides in the realm of executive definition making. Having a precise enterprise-wide definition of what constitutes a goodwill investment is not in the final analysis important. What is important is taking the time to understand the desired impact the goodwill will have on your brand - but measuring the status quo is like counting angels on the head of a pin..
To determine the value of your goodwill investment - look to the forgone profit stream, and any traditional win-back costs as an upper end of the investment it is willing to make, or look at your average customer tenure and then value those who exceed that threshold. The point is you need to make the effort - if you believe there is value in retaining "that lump left over".
The real challenge comes with acting on those convictions - of using that investment as part of your brand retention program. I'm not talking about upsell/cross sell - but rather at those programs that help your customers FEEL your thanks for their patronage.See Rule # 13
By way of example I point out how one of the Telco's launched a holiday season email program inviting customers to play a game - where everyone had a chance to win some sort of prize.
(I ran a similar type of program back in my Lysol days - as part of a clean and win sweepstakes
Customers had to clean a dirt spot on the instore ad pad - which in most cases revealed a coupon value (remember everyone likes to win)
While I naturally don't have the Telco's results - I know from my experience - these types of thank you events are exceptionally powerful business and goodwill generators.
But they went a step further and sought to measure their impact - as I was recently asked to participate in an online survey - probing me with all sorts of questions regarding my brand affinities, likes/dislikes etc... .
Seems to me that goodwill is much more than just "the lump left over". Come to think of it - doesn't that description also apply to profit?
"Profit is the applause of your customers." Ken Blanchard
