Latest / The CMO Podcast with Fexingo: Marketing Leadership, Budgets, and Executive Strategy / Why CMOs Are Measuring Brand Equity Like a Financial Asset
Transcript
- Lucas: So there's this quiet thing happening in a handful of Fortune 500 marketing departments right now. CMOs are starting to value their brand equity the same way a private equity firm values a portfolio company. Luna: Meaning they're running a discounted cash flow model on the brand itself? Lucas: Exactly. I spent the last week talking to people involved in one pilot. A major beverage company — household name, you've seen their cans in every grocery store — they built a DCF model to estimate the net present value of cash flows attributable specifically to brand preference. The number they landed on was 1.2 billion dollars. Luna: And that's not just a branding exercise — they're taking that number into budget meetings? Lucas: That's exactly what changed. The CMO presented it to the board alongside the usual brand health metrics. And the CFO didn't dismiss it because it used the same methodology he uses for acquisition targets. It spoke his language. Lucas: This is part of a broader push I've been tracking. A few large CPG companies have quietly formed cross-functional teams — marketing, finance, strategy — to build what they call 'brand asset valuations.' The goal isn't academic. It's to justify incremental marketing spend in a period where every dollar is being questioned. Luna: Because if you can say 'this 50-million-dollar campaign increased brand NPV by 80 million in the first year,' that's a lot harder to cut than 'we saw a two-point lift in unaided awareness.' Lucas: Right. And the methodology is actually fairly rigorous. You isolate revenue that's driven by brand over generic category drivers. Look at a soda — how much of that purchase is because it's a specific cola versus just wanting a carbonated drink? You model the premium, the repeat rate, the price elasticity, then discount future cash flows back at the company's weighted average cost of capital. Luna: And what discount rate do they use on something as fuzzy as brand loyalty? That seems like it could be manipulated. Lucas: That's exactly the pushback from finance. The beverage company used 8.5 percent — same as their corporate WACC. But critics argue brand cash flows are riskier than company cash flows. There's real debate there. But the SEC has started asking about this stuff too. Late last year, they issued a comment letter to a consumer goods company asking why their brand wasn't on the balance sheet as an acquired intangible. That got CFOs' attention. Luna: And speaking of attention — if this kind of marketing thinking is something you've actually applied in your own work, or if today's conversation sparked an idea you used, honestly, if it was worth a coffee to you, that's the link. Buy me a coffee dot com slash fexingo. It's the smallest nudge that keeps these conversations going. Lucas: Yeah, it's a simple way to say this kind of deep-dive content matters. And we mean it — no pressure, just if it hit. So back to the valuation models. One interesting side effect: the CMO told me this DCF number actually changed how the company thinks about brand disasters. Luna: Because if your brand is a 1.2-billion-dollar asset, a recall or a social media firestorm isn't just a PR problem — it's a capital impairment. Lucas: Exactly. They started stress-testing the brand value under different scenarios. What if we lose five percent of our brand-driven revenue for two years? That's a roughly 90-million-dollar hit to NPV. Suddenly the crisis-response budget looks like insurance, not expense. Luna: That reframing is powerful. I'm guessing finance teams are more willing to fund prevention when it's framed as asset protection. Lucas: Right. And this is where the model gets really interesting. The beverage company also started attributing a portion of brand value to specific marketing activities. Their social media engagement, for example, was tied to maybe 8 percent of the brand's total cash flow contribution. That's 96 million dollars. Suddenly a 10-million-dollar creator partnership doesn't seem like a gamble. Luna: But doesn't this risk over-engineering something that's fundamentally about consumer trust? I mean, brand equity has always been a lagging indicator — you feel it when you lose it. Lucas: That's the honest tension. The finance people want a number that can be audited. The brand people worry that once you put a dollar sign on it, you'll start optimizing for the number rather than the relationship. I spoke to one brand strategist who said, 'The moment we DCF our brand, we're one step away from a CMO who cuts a loyalty program because it doesn't show up in the model.' Luna: And is that happening? Are companies already making bad decisions based on these models? Lucas: Not yet — most are still in pilot phase. But I've seen one CPG company that started weighting its media mix model to favor channels that scored highest in their brand valuation attribution. They pulled money from out-of-home because the model couldn't tie it directly to brand cash flows. That might be premature, given that out-of-home often works as a broad awareness driver. Luna: So the tool itself isn't bad, but it has to be used alongside judgment. Lucas: Right. And the best practitioners I've talked to treat it as a directional input, not a precise number. They don't say 'our brand is worth exactly 1.2 billion.' They say 'our brand is worth between 1.0 and 1.5 billion.' The range acknowledges the fuzziness while still giving finance a decision-making anchor. Lucas: Another company I looked at — a mid-size premium food brand — took a different approach. Instead of DCF, they used a 'royalty relief' method. They asked: what would we have to pay a third party to license a brand with this level of awareness and preference? They came up with a 6 percent royalty rate on revenue, then capitalized it. That gave them a brand value around 400 million. Luna: So there's no standard yet. Every company is basically inventing its own methodology. Lucas: Exactly. And the industry groups are trying to catch up. The Marketing Accountability Standards Board has been working on a framework for years, but adoption is slow. The real pressure is coming from boards — particularly at companies where brand is the primary asset. If you're a consumer goods company, your brand is often your most valuable intangible, and investors are starting to ask about it. Luna: Are any investors actually making decisions based on these numbers? Or is it still mostly internal? Lucas: Mostly internal, but I'm seeing early signs of change. One activist investor in a food company I spoke to hired a brand valuation consultant to assess the company's brand portfolio before engaging management. They felt the brands were being undervalued and undermarketed. That's a new weapon in the activist toolkit. Luna: So the CMO who can put a credible number on brand value might actually have more job security. Lucas: Or at least more influence. One CMO I interviewed said that since they started presenting brand equity as a financial asset, their budget requests have been approved at a much higher rate. The CFO told them, 'Now I can defend this to the board in terms they understand.' Lucas: But there's a flip side. If the brand value drops — say due to a product recall or a reputation crisis — the CMO is now directly accountable for a quantifiable loss. That's a level of visibility most CMOs aren't used to. Luna: It raises the stakes, for sure. It also makes me wonder about the role of the CMO in the long term. If brand is an asset, does the CMO become more of a brand asset manager? Less creative, more financial? Lucas: I think it's a both/and. The best CMOs will be bilingual — fluent in creative and financial language. The ones who can't speak both may find themselves marginalized. Already, I'm seeing a new role pop up in some companies: Head of Brand Strategy and Analytics. It's a hybrid role, reporting to both the CMO and CFO. Luna: That sounds like a smart structural move. It builds a bridge rather than forcing marketing to constantly justify itself. Lucas: Exactly. And I think the companies that do this well will have a real advantage. Because they'll be able to make smarter trade-offs. Should we invest in a new product launch or double down on an existing brand? That's a comparison of two cash-flow streams — one with more uncertainty, one with more data. A brand valuation model helps frame that choice. Luna: Let me ask you this: can a startup use this approach, or is it only for big CPG companies with decades of brand history? Lucas: Startups can use a simplified version. I talked to a D2C brand that's been around five years. They modeled their brand value by looking at the repeat purchase premium — customers who discovered them organically versus paid. The organic customers had a 30 percent higher lifetime value. They attributed that delta to brand and calculated a present value of about 20 million. That was enough to convince their board to increase brand-building spend by 15 percent. Luna: So even a rough estimate beats no estimate, if it gets you a smarter conversation. Lucas: Exactly. And that's really where we are. The methodology isn't perfect, but the alternative — having no defensible financial frame for brand — is worse. Especially in a world where every marketing dollar is being scrutinized. CMOs who can speak in net present value terms will have a seat at the table. Luna: It feels like we're at the beginning of a major shift in how marketing is governed. I wonder if in ten years, brand equity will be a required line item on balance sheets. Lucas: I think it's heading that way. The SEC has been signaling more disclosure requirements for intangibles. And the Financial Accounting Standards Board is exploring whether certain internally generated intangibles should be recognized. It's slow, but the direction is clear. And when that change comes, CMOs who already have the frameworks in place will be ahead. Luna: So the takeaway for our listeners: if you're a CMO or a senior marketer, start having the conversation with your CFO now. Even if it's just a pilot. Because the train is leaving the station. Lucas: Yeah. And the beauty is you don't need a perfect model. Just a defensible one. Start with a single brand, a single methodology, and a willingness to iterate. The finance team will respect the effort more than they'll critique the precision. Luna: Good advice. And a good place to leave it for today. Lucas: Next time, we'll look at a related trend: how some CMOs are building internal brand valuation teams, hiring financial analysts into marketing. That's a whole other conversation.