MarketingAsAnInvestment v12

Marketing is
an investment
By Ian Whittaker
Contents
Foreword.................................................................................... 3
Summary................................................................................... 4
Part one: The problem...................................................... 9
Part two: Investment analyst 18
survey findings.........................................................................
Part three: Evidence from global brand 30
owners on marketing, price and profit.....................
Part four: How to make a more persuasive 38
case that marketing is an investment......................
Appendix................................................................................. 46
Endnotes................................................................................. 48
This report was written by Ian

Whittaker, a former City equities
research analyst who is now
the Founder and Managing
Director of Liberty Sky Advisors,
a consultancy that advises
agencies and companies across
the technology, media and
telecoms space.
Additional editing by Carlos
Grande, IPA Editorial Consultant.
Back to contents page Marketing is an investment | IPA | 2

Foreword
Management teams know that marketing is This report examines the contexts and beliefs Building on those insights, this report aims to
critical to engaging customers and growing around marketing expenditure. It includes the encourage corporate marketers to increase their
businesses. But they also feel under pressure results of an exclusive survey from Brand Finance efforts to persuade analysts and the wider investor
to deliver consistently on their companies’ into perceptions about marketing among UK and community that spend on effective marketing,
financial targets. US investment analysts. with the emphasis on brand building activities,
All too often this creates the temptation to cut Among analysts, our research is primarily an investment in a company’s future,
marketing budgets when earnings forecasts found much increased scrutiny rather than a cost in its present.
are at risk of being missed. Where evidence of corporate reporting on We are conscious that changing attitudes
that spend on effective marketing can support marketing and a desire for more to marketing is a marathon, not a sprint. The
financial benefits – such as sales growth or transparency on marketing messages and recommendations in this report will
pricing strength – is either not known or not strategies. It also revealed need to be continually reinforced and supported
believed, such marketing cuts can seem a an open-mindedness to by the right research and communication.
relatively low-risk step for a challenged company. changing how marketing However, when it succeeds, this journey could
Based on the marketing-effectiveness insights expenditure is cement understanding of the central role of
collated by the IPA and many others, we believe treated in financial marketing investment in generating long-term
that cutting marketing budgets damages brands accounting. value for businesses.
and businesses, especially over time.1
Therefore it is in the interests of brand owners,
the marketing industry and the economy as
a whole to understand the assumptions and
decision-making around marketing budgets
more fully, and to develop solutions to help Laurence Green,
businesses avoid short-sighted cuts. IPA Director of Effectiveness

Summary
This report presents evidence and arguments for Part three discusses evidence of how maintaining
treating brand marketing as a sustained strategic marketing budgets has helped the recent pricing In company financial reporting, marketing
investment in a company’s long-term business and profit performance of some major brand- expenditure is often labelled ‘advertising
priorities, and not simply as a cost to manage. owning companies. & promotion’ or ‘A&P’. This is a term which
encompasses both marketing for long-term
There are four parts to the report. Part four features recommendations on
brand building and the more promotional,
how marketers can make a more persuasive case
Part one briefly outlines the problem of why activation side of marketing. This report
that marketing can be a long-term investment
marketing expenditure is too often a victim of short- uses the terms ‘marketing’ ‘advertising &
in future business growth to a variety of financial
term budget cuts. promotion’ and ‘advertising/brand comms’
audiences, from CFOs and boards to analysts and
Part two includes exclusive new findings from an interchangeably when the totality of
accounting bodies.
IPA survey with Brand Finance, the brand valuation marketing activities and expenditure are being
and strategic consultancy, of perceptions about discussed. When brand building or activations
marketing among more than 200 UK and US are specifically being talked out, the report
investment analysts. uses those more descriptive terms.

Investment analyst survey key findings The 2023 survey findings are summarised here. • More analysts connected marketing to growing
The IPA and Brand Finance surveyed 203 financial profit and sales volumes than to supporting
• Brand strength and marketing was the
analysts of publicly listed companies in the UK brand pricing.
most cited factor by analysts for appraising
and the US. They included both equity research
companies. • Significant numbers of analysts thought
analysts at investment banks (‘sell-side’ analysts)
marketing expenditure lacked transparency.
and analysts working for asset managers and • 80% of analysts in the 2023 sample examined
others that invest in companies (‘buy-side’). This marketing expenditure – a huge increase from • Almost 90% of analysts believed marketing
online survey data was supplemented by selected 6% of the UK analysts surveyed in 2005. expenditure should be capitalised
qualitative interviews. at least some of the time.
• Analysts who regularly examined companies’
A 2005 IPA telephone survey of UK analysts had marketing spend were more likely to see this • Cuts in marketing spend were
some of the same questions. Where relevant, we spend as an investment and contributor to less negatively perceived than
have compared responses from both surveys. business growth. cuts in R&D spend.

Evidence from major brand owners
We analysed recent announcements from
prominent consumer packaged goods companies,
including Unilever, Procter and Gamble (P&G),
PepsiCo, Coca-Cola and Colgate-Palmolive.
Our analysis suggests that these companies
view their marketing budgets as very much an
investment, rather than a cost, and believe the
benefits from their marketing investments include
strengthened brands and pricing power.
The main evidence for this was:
• analysed companies reported a greater
tolerance among consumers to accept big price
increases than was predicted by analysts and
some companies’ own price elasticity models
(namely, firms did not experience the predicted
falls in sales volumes when the price of branded
goods rose)
• in conference calls to investors and analysts,
companies highlighted the contribution made by
their marketing spend to the strength of brands
in their portfolios and to the overall robust
financial performance of their businesses

How to make the case that marketing Marketers should take every opportunity to iscounted cashflow (DCF) analysis is one method
D
is an investment demonstrate that they fully understand their widely used by finance teams when evaluating
It is vital to tackle the perception that marketing company’s financial priorities and can explain how investments. This method could be deployed more
expenditure is a ‘black hole’ lacking transparency marketing supports these goals. often by marketers to estimate the financial benefits
on where spend goes or how it works to generate of sustained marketing expenditure.
If marketers can persuade their colleagues
longer-term financial value.
that their activities contribute to the company’s arketers who can credibly employ techniques
M
Therefore companies should provide analysts with objectives and key financial metrics, if not such as DCF models are demonstrating willingness
more evidence of the long-term value created by shape them, they will be less likely to have their to have their budgets discussed and evaluated in
effective marketing, particularly for its ability to budgets viewed as a cost to be cut, rather than an similar ways to other areas of long-term business
support brand pricing. Access to detailed, relevant investment to be maintained. investment.
information will equip analysts to ask searching
he investment case for marketing should be made
T
questions of managers announcing marketing cuts
using language credible to CFOs and the board.
(and to demand effectiveness from marketers).

e need to ensure that the evidence base about
W Accounting rules are also typically slow to change,
the financial benefits of expenditure on effective reflecting their status as sets of international
marketing is more widely known in financial standards followed by millions of businesses and
communities, and that this evidence base is practitioners in the financial services.
continually improved and updated.
Any movement for reform needs to build the
Our survey of analysts provides fresh evidence widest possible base of support after debating the
for the debate about how financial accounting case for, and implications of, changing the rules
practices could better deal with marketing governing the accounting treatment of marketing
expenditure and brands. The data shows expenditure.
dissatisfaction in the analyst community with
This report provides both evidence and
current practices.
arguments as contributions to this debate.
The argument for change is that under accounting
rules there is a mismatch between the period in
which marketing spend is incurred and the longer
timeframes in which sustained brand building
marketing can create financial gains and develop
brand assets.
he rules do nothing to encourage companies
T
to view brand marketing budgets as long-term
investments and to protect these budgets in
tough times.
Reforms, such as re-classifying at least some brand
building marketing expenditure as capex or valuing
internally developed brands on balance sheets,
are big steps to take. They would have potential
implications for companies’ profit reporting, tax
positions, and brand valuation methods.

Part one:
The problem
Why is marketing often one of the first items

to be cut when companies need to reduce
spending quickly?

There are three interrelated reasons why marketing
can be perceived by publicly listed companies as a
low-risk area for spending cuts.
1. Even when business leaders view marketing 2. P

ressure to meet the short-term financial 3. A
ccounting rules can provide an incentive for
positively, they often lack sufficient knowledge targets of analysts and investors leads boards companies to cut marketing budgets as a short-
of, and confidence in, how marketing to look for quick savings when trading is tough. term boost to their profits, especially in tough
expenditure directly contributes to the Cancelling planned marketing spend can seem trading conditions. The rules do not recognise
company’s longer-term financial objectives. a quicker, more temporary and less disruptive that marketing spend incurred in one accounting
Consequently, they can fail to see the full decision for the company than cutting other period can generate financial benefits and
future downside to the business from cutting types of operating expenditure. create brand assets over a longer timeframe.
marketing budgets. They therefore do nothing to encourage
companies to view brand building marketing as
a long-term investment.

1. Board support for brand building has shallow roots
Senior managers have a positive – but sometimes Figure 1: ‘As a leadership team, we understand how a strong brand continually contributes to the bottom line of the business’
weak – understanding of marketing and its value
In the 2019 joint Financial Times (FT)/IPA report, The
Strongly agree 28%
Board-Brand Rift,2 76% of C-suite business leaders
76%
agreed that they understood how strong brands
Agree 48%
continually delivered to the bottom line (Figure 1).
However, over 50% of business leaders described Neutral 18%
knowledge of brand building in their boardrooms

with adjectives ranging from ‘average’ to ‘very poor’, Disagree 4%
and only 8% described it as ‘excellent’ (Figure 2).
Strongly disagree 2%
Non-marketers were significantly less likely than
marketers to highlight the importance of brand
strength for establishing new revenue streams,
reducing customers’ price sensitivity, and improving Source: The Board-Brand Rift FT/IPA 2019
profitability for instance.

Since boards mostly comprise non-marketers,
this suggests leadership support for building the
company’s brands via effective marketing spend
Figure 2: More than 50% of business leaders rated knowledge of brand building in their organisations as average to very poor
has shallow organisational roots.
This makes it easier for decision-makers to
downplay the full impact on the future 8% 41% 39% 10% 3%
performance of the business when making
marketing budget cuts.
Key: Excellent Good Average Poor Very poor
Source: The Board-Brand Rift FT/IPA 2019

2. Managements are under pressure to meet short-term targets
Financial markets’ short-term focus Figure 4: Many factors are perceived to impede businesses from developing a balance of short-term and long-term marketing activities
compounds issues
In the FT/IPA research, 66% of respondents Which of the following do you think impedes a balanced approach
to short-term and long-term marketing activities?
agreed that a balance of short-term and long-term
Lack of metrics to measure brand health that
marketing activities delivered better returns for the are credible to senior management
50%
business (Figure 3).

Shareholder pressure/a business-wide focus 39%
on short-term financial performance
Need for more understanding in our organisation on how

brand strength and health delivers commercial value 39%
Figure 3: Percentage agreeing/disagreeing with the statement
‘A balanced approach to short-term and long-term objectives
delivers better returns’ Need for more robust financial understanding 29%
within the marketing department
The case for longer-term investment 27%

in brands is not being made
6%
4%
The marketing department using language
27%
that is not clearly understood
26% The need for stronger brand building skills

22%
in the marketing department
24%
Other 5%
0 10 20 30 40 50
40% Source: The Board-Brand Rift FT/IPA 2019
In the same study 39% said ‘shareholder pressure or by 50%) (Figure 4). In addition, in every global region
a business-wide focus on short-term performance’ surveyed, respondents said their organisations’
Key: Strongly agree Agree Neutral Disagree Strongly disagree impeded getting this balance right (though lack of reporting cycle for marketing was getting shorter.
credible brand metrics was cited as an impediment
Source: The Board-Brand Rift FT/IPA 2019

Every six months UK- listed companies report Figure 5: Net inflows/outflows ($bn) from US funds according to the amount of fees that funds charge (August 2023)
full results; for US-listed companies, this reporting
requirement is quarterly. This means business 1000
leaders face a regular series of short-term
targets against which the performance of their
business and its leadership is being judged by
the financial markets.
500
In recent years, the participants in those markets
have been changing. There has been a rise in so-
called ‘activist’ shareholders. The reputation of such
shareholders is that when they perceive businesses 0
are underperforming they are more likely than
traditional investors to take high-profile actions, like
increasing their stake in the company, criticising it in
public, or lobbying to gain a seat on its board.
-500
Another trend is the increased volume of market
investment from exchange-traded funds (ETFs).
ETFs typically contain a basket of different shares 2003 2005 2010 2015 2020 2022
and aim to track the broader movements in a share

index, often using algorithms to decide when to buy Key: Cheapest 20% Remaining 80% Source: Morningstar/FT.
and sell shares. This differs from ‘actively’ traded

funds where fund managers try to outperform software that ETFs use primarily analyses the keep spending and take a short-term hit to profits –
an index by anticipating market movements and results and sentiment in a company’s financial may see the influence of share trading by ETFs in a
weighting their investment portfolio accordingly. reports against the market’s expectations to drive bigger than expected share price fall.
its share trading.
As Figure 5 shows, the cheapest 20% of funds on The upshot of these recent trends is to re-affirm
the US market have seen significant net inflows of Companies that underperform those expectations the importance for the leaders of listed companies
funds from investors in recent years. The reason – even if they have made the case that it was better of consistently meeting the markets’ short-term
why this matters here is that the algorithmic for the long-term performance of the business to earnings expectations.

If a company misses these targets, its share price In the IPA/Brand Finance survey more than half (52%)
(and therefore its market capitalisation) will inevitably of investment analysts said they would perceive
suffer. A persistently weak share price will affect its a marketing spend cut as a positive cost-saving
ability to raise new share capital or use its shares to measure. The view that the cut would be a ‘short-
acquire other businesses. Management will be at risk term fix with negative long-term consequences’ was
of being replaced. At the very least, they could miss only held by 36% (see Figure 19 on page 27).
out on significant elements of their remuneration
Contrast this with the analysts’ less tolerant attitude
linked to the value of the company’s shares.
to a cut in R&D spend. In the survey, 44% said they
The continual need to manage financial markets’ would regard an R&D cut as a positive cost-saving
expectations is one factor pushing the leaders of measure, and 47% said it would be a short-term fix
listed businesses towards shorter-term decision- with negative long-term consequences.
making on how companies use their cash in general.
The reality is that financial markets need
According to a Financial Times report in October 2023,
earnings targets to be able to assess
investment horizons at the world’s largest companies
companies’ performance over a variety
have fallen to their shortest since the think tank FCLT
of timeframes. A requirement to manage
began analysing this type of data in 2009.3
expectations around such targets is a
In the context of marketing spend, this overall fact of life (and sometimes a useful
business trend towards short-termism should be discipline) for company leaders.
seen in combination with the evidence cited in
It is incumbent on companies
Figure 4 of the perceived lack of credible
to keep making the case
marketing metrics and weak understanding among
why their marketing
business leaders of how marketing contributes to
expenditure effectively
business priorities.
contributes towards
Against this backdrop, it is easy to see why, when the performance of the
trading conditions are tough, boards can regard business. They can do so
axing planned marketing spend as a relatively quick by sharing more information
and low-risk cost saving to make if it increases the on marketing spend and
chances of hitting profit forecasts and keeping strategies with analysts
financial markets onside. and investors.

3. Accounting rules do nothing to encourage
marketing to be seen as a long-term investment
How companies report their financial The profit-and-loss account (P&L), also known Why are these financial statements relevant to our
position also matters as the income statement, reports the company’s discussion of marketing? The brief answer is to
Accounting rules in key company financial reported revenues minus its costs to give its profit do with how companies treat their main costs for
statements also affect how marketing and any cuts or loss result for the accounting period. Note, this accounting purposes.
to marketing budgets can be viewed. is not the same as the actual cash inflows and
Operating expenditure (opex) comprises those
outflows experienced at the business during the
To appreciate why, it is necessary to look at the expenses incurred as part of the business-as-usual
period, which is covered by the cashflow statement
three key financial statements for companies: running costs of the company. Examples include
discussed below.
staff salaries, rent and utilities bills, insurance, office
The balance sheet shows the assets, liabilities, supplies, and other overheads classified as part
and equity of the business. Its assets cover what a of the cost of goods or services provided by the
company has in current or future economic value. company. Marketing in any form is also categorised
Relevantly for us, brands that are developed by a as opex. This is despite the evidence that marketing
company are not valued as assets on the balance spend in one year can create longer-term value and
sheet, though the costs associated with acquiring company brands nurtured through marketing can
brand assets from another business are. Liabilities be very valuable enduring assets.
are what a company owes, and the equity is the
All opex costs are fully expensed in the P&L in the
total value of the company’s shares.
accounting period in which they were incurred.
The cashflow statement shows actual changes in
Capital expenditure (capex) is the category for
the company’s cash finances over the period. The
the company’s expenditure, typically on bigger,
cashflow statement is crucial because accounting
more fixed assets, such as land, buildings, major
policies provide some freedom regarding the way
equipment, or software. These are considered
companies report items in their P&L and this will
not just costs but investments in assets that
affect the overall profit or loss figure they report in
will provide value to a company over several
any period. The company’s cash position will be
accounting periods, and they are therefore deferred
unchanged by this accounting treatment.
to (or capitalised on) the balance sheet. Then, Why marketing can seem an easy budget
over time, these costs will be recognised in the to cut – and accounting rules don’t help
P&L via depreciation charges for tangible assets When a business is struggling commercially, it is
and amortisation charges for intangibles, with a normal for its leaders to look for potential quick
corresponding adjustment in the carrying value spending cuts to boost the company’s chances of
of these assets on the balance sheet. Accounting meeting its profit targets, and sometimes also to
rules provide some freedom as to the period, and conserve its cash.
the rate, at which these costs are recognised on
It could freeze future capital expenditure. But, as
the P&L. (See Appendix for more detail).
explained above, only a fraction of capex impacts
These practices enable companies to spread the P&L through depreciation and amortisation
over several years the impact of capex spending charges in any one accounting year. These charges
on their P&L (though not their cashflow statement). may relate to cash already spent in previous years
Otherwise, they might be disincentivised from that can’t be reduced. Because capex relates to
making long-term business investments. longer-term business investment, any big reduction
in capital spending could also be seen as a
lowering of the company’s future growth ambitions,
which could lead analysts to downgrade their
earnings forecasts for the company anyway.
So it is understandable that companies will look
mainly to their operating expenditure if they want to
make quick and impactful spending cuts to improve
their financial position.
Perhaps a more important question is why, when
businesses look at all the areas counted as
operating expenditure, managements will often
view marketing spend as one of the areas that
can be most significantly and rapidly reduced at
relatively low perceived risk to the business.

Opex items, such as staff salaries, rent or utilities might seem one of the easier decisions for the
bills, or technology licences are much more like organisation to take. Ironically, even arguments
fixed costs on the business. They can’t easily be used to champion marketing are often turned
cut or negotiated down at speed. against future spending on the grounds that if the
business did a sufficiently good past job marketing
A struggling company may have some room to
its brands, then these brands probably would not
reduce its labour costs. For instance, it may not
decline, at least for a time, if expenditure halted.
pay staff bonuses or could choose to reduce
project consultants and freelance contractors. The key phrase here is ‘for a time’. Companies at
These are unlikely to provide either a quick or risk of missing short-term earnings forecasts –
sizable fix and could make the company less and the consequences that will follow from this
productive. If there are actual staff job cuts, these underperformance – are looking to buy themselves
will usually involve some short-term costs and time for the business to get back on track with
disruption for the organisation. market expectations.
Other areas of opex, such as spending on travel Cutting marketing expenditure can seem a
or staff entertainment, could also be reined in. relatively painless way to purchase this
But these budgets are too small for these cuts to breathing space.
make a sufficient difference by themselves. Other
However, in the near term, it can make the
overheads more directly associated with the cost
business vulnerable to competitor advertisers
of goods sold (COGS) may go down in total anyway
that use budgets to increase their own ‘share of
if the company is selling fewer units.
voice’ in the market.4 If cuts are prolonged, they
In contrast, marketing can seem to be one relatively will damage the strength of the brands owned
large cost over which the company has greater by the business and their contribution to
discretion to decide how, when and whether this metrics, such as organic growth and
will be incurred. sales price. Businesses should argue that
spending on brand building marketing is
It is not difficult to see why, for those managers who
primarily an investment in their future, not a
are unclear or sceptical about the value marketing
cost in their present. Marketing cuts will put
expenditure creates for the business, cutting the
their future growth rate at risk.
marketing budget in a challenging environment

Part two:
Investment analyst
survey
findings
In 2023 the IPA commissioned an online survey
from Brand Finance, the brand valuation and
strategic consultancy, of 203 financial ‘buy-side’
and ‘sell-side’ analysts from the United Kingdom
and United States.
This research was designed to ascertain the views
The IPA would like to thank the following people for the
of analysts covering different industries. Analysts
development and analysis of this survey and its findings:
were questioned about expenditure by publicly
listed companies on what is often called in financial
reporting contexts ‘advertising & promotion’ (A&P).
This report treats ‘A&P’ interchangeably with the
more generic term of ‘marketing expenditure’ used
in general business contexts.
This quantitative survey was complemented
by several deeper-dive, one-to-one qualitative
interviews with analyst respondents. In addition,
several questions in 2023 were the same as those
in a 2005 telephone survey of 50 UK analysts
published by the IPA. Where it is relevant, we have
provided some comparisons between the results
Annie Brown, Fran Cassidy, of both studies.
General Manager, Owner, Cassidy Media Partnership,
Brand Finance UK and IPA consultant

Investment
analyst research Figure 6: Brand strength/marketing is the most often cited factor by analysts in appraising companies
The strength of a company’s brands and

marketing was the factor most cited by analysts
as important to their appraisal of businesses Thinking about public companies in the industry or industries you cover, how important
are the following factors to your appraisal and analysis? (Tick any or all that apply)
Analysts were given a list of six factors (Figure 6)
and asked to say which were important to them
Strength of brand/marketing 79%
when appraising the publicly listed companies in
the categories they covered. Respondents could Leadership quality 76%
choose any or all of the factors.
The strength of a company’s brands and marketing Technological innovation 72%
was most often selected with 79% of respondents

71%
choosing this factor. This characteristic was more Reported profit
often cited than the quality of the company

Sustainability (ESG) 63%
leadership (76%), its technology innovation (72%), or
its reported profit (71%). Employee experience 62%
While all the factors were considered important by

0 20 40 60 80 100
the majority of respondents, it is the fact that brand
strength/marketing was the most chosen that is
worth noticing.
Source: Investment analysts research 2023 – IPA and Brand Finance Total sample; Unweighted; base n = 203

Analysts understand that advertising and brand Figure 7: Factors impacted by advertising and brand comms Figure 8: Factors impacted by advertising and brand comms
communications help key business metrics, such
as sales and profit, but are less likely to see their
benefits on pricing
Analysts recognised that advertising and branding Which financial metrics do advertising/brand comms help? Which single metric benefits most from
advertising and brand spending?
help key financial metrics. As Figure 7 shows,
survey respondents were most likely to cite profit Profit margin 77%
margin (77%) and sales volumes (71%) as financial 2%
metrics that advertising and brand communications 4%
Sales volume 71%
benefited. This was ahead of market share (66%), 8%
sales price (54%) or cashflow (52%).

Market share 66% 31%
Notably, on sales price, the overall figure of 54% 9%
could be split into the figures among analysts
Sales price 54%
covering B2B companies, which was 45%, and a
much higher figure of 76% among analysts of
B2C companies. Cashflow 52%
When analysts were asked (Figure 8) which one 18%

metric benefited most from marketing expenditure, Share price 44%
support for sales volume (31%) and profit margin

(28%) were both more than three times higher than Risk 27% 28%
that for sales price (9%).

0 10 20 30 40 50 60 70 80
This is an interesting finding given what this report % who felt this can be benefited
discusses later about the strategy of major brand
owners in recent years to invest in marketing to
strengthen their brands’ pricing power. Key: Profit margin Sales volume Market share Sales price Cashflow Share price Risk

Most analysts examined A&P spend in the
companies they followed
Overall, 80% of analysts surveyed in 2023 said they
analysed the A&P expenditure of the companies
they followed (Figure 9).
Analysts of B2C companies were more likely (86%) Figure 9: % currently do analysis on A&P
than analysts of B2B companies (74%) to look at
A&P spend (Figure 10). 100
However, a more useful contrast is with the overall

80
figure from the 2005 telephone survey of UK 80%
analysts when a similar question was asked. In 60
2005, only 6% of analysts said they examined
A&P budgets. 40
Figure 10: Do you currently do analysis on the A&P of the
The striking difference in the answers from both 20
companies you track?
surveys probably reflects greater interest within
100
financial communities about marketing spend. 0 6%
2005 2023
80 86%
74%
60
Sources: IPA 2005 survey, base n = 50; Investment analysts research 2023 – IPA and Brand Finance
Total 2023 sample; Unweighted; base n = 203
40
20
0
B2C B2B
Note on industry groupings: respondents grouped in a way so that there is less cross-over effect. People
qualify to be a B2C respondent by their absence of coverage of B2B industries (i.e. they could cover FMCG
and Automobiles but they do not cover Engineering.)

A significant proportion of analysts thought agree that marketing was a black hole than the UK As Figure 12 shows, 30% did not agree with the
marketing and the returns from marketing lacked analysts surveyed in 2005. However, there were ‘black box’ view of return on marketing.
transparency. still 38% of UK respondents5 in 2023 who agreed
However, nearly half of respondents confirmed their
with the ‘black hole’ description either strongly
Another question asked in both the 2023 and 2005 scepticism about the transparency of returns from
or to a degree.
surveys was the degree to which analysts believed marketing by agreeing with the term.
marketing expenditure could be, to use a colloquial In the 2023 study we added a question about
phrase, ‘a big black hole’. As Figure 11 shows, UK whether all respondents agreed with the statement
respondents in the 2023 survey were less likely to ‘Is return on marketing a ‘big black box’?’
Figure 11: Marketing expenditure is a ‘big black hole’ Figure 12: Is return on marketing a ‘big black box’?
30 40
27% 35
25
25% 25% 25%
30 31%
20 21%
20% 20% 25
17% 23%
15 20 21%
14%
15
10 16%
10
5
5% 5 7%
0 2%
0
Strongly agree To a degree Neutral Not really Not at all Strongly agree To a degree Neutral Not really Not at all Don’t know
Key: 2005 2023 (UK sample only)
Source: IPA 2005 survey; Investment analysts research 2023 – IPA and Brand Finance Total 2023 sample; Unweighted; base n = 203 Source: Investment analysts research 2023 – IPA and Brand Finance Total sample; Unweighted; base n = 203

Analysts are divided on which types of marketing Figure 13: When thinking about types of marketing spend, companies often refer to advertising
are investments, costs or a mix of these and promotion (A&P). How would you define the nature of that spending?
In the 2023 survey, analysts were asked to look
at advertising and promotion separately and say
whether they thought each type of spending was
an investment, an operating cost or a mixture of 1% 1%
100
investment and cost. For both advertising and
promotion, the biggest group of analysts saw
each of these spending categories as a mixture of 37%
28%
80
investment and cost (Figure 13).
However, analysts’ view of advertising was more
weighted towards investment with 37% of analysts
60
seeing advertising as an investment, whereas
only 28% of analysts thought promotion was an 48%
investment. About equal numbers of analysts saw 38%
40
advertising or promotion as an operating cost (24%
and 23% respectively).
This can be taken as evidence that the advertising
20
and marketing industries need to do a better job
of explaining that promotion (for instance, running 24%
23%
a two-for-one price offer without other marketing
0
activity to build awareness or consideration for the Advertising Promotion
brand itself) is almost wholly a cost. Conversely,
if advertising is effective, much of its value will be Key:
generated in the medium to long term, which makes An operating cost A bit of both An investment Not sure
it more like other types of business investment.

Nearly 90% of analysts thought at least some of However, 89% of analysts thought that at least least some marketing costs by moving them from
the time marketing spend should be similarly sometimes spend on marketing should be given opex to capex, i.e. treat brand building marketing
treated to technology R&D as capital expenditure the same accounting treatment as technology R&D budgets less like a series of short-term costs
for accounting purposes (Figure 14), which is capitalised with its impact on and more like longer-term investments in future
One of the most important aims of our survey was the profit and loss statement spread over several business growth.
to gain a better understanding of analysts’ views of accounting periods.
Analysts who did track companies’ A&P were
the accounting treatment of marketing expenditure.
Only 6% of respondents said marketing spend significantly more likely to view this spend as an
Currently, marketing expenditure is treated as
should not be capitalised. This suggests there investment and believe it could drive organic
operating expenditure and fully expensed within
would be strong support in the financial community growth for the business (Figure 15).
the accounting period in which it was spent.
for moves to review the accounting treatment of at
Figure 14: Do you think marketing spend should be treated Figure 15: Analysts who analyse A&P are significantly more likely to believe it is an investment and that it drives organic growth
like technology R&D, where it is capitalised?
4%
6% 30%
Marketing expenditure is an investment
that should be made more effective
53%
Key:
Yes
Sometimes
25%
33% No Marketing expenditure
56% Not sure drives organic growth
46%
0 10 20 30 40 50 60
Key: Do not analyse A&P Analyse A&P
Source: Investment analysts research 2023 – IPA and Brand Finance Total sample; Unweighted; base n = 203 Source: Investment analysts research 2023 – IPA and Brand Finance Total sample; Unweighted; base n = 203

Three things stand out in the survey data. First, Figure 17: Those who participate more regularly in earnings calls are more likely to agree to capitalisation of marketing spend
analysts who said they analysed A&P spend
were much more likely to have a positive view
of marketing as a contributor to organic growth
and to believe marketing was an investment
that should be made more effective. If marketers 70
69%
want to encourage analysts to think of their work 60
66%
to capitalising A&P spend

Percentage who say ‘Yes’
as investing the company’s money, and not just 50
52%
spending it, then they should provide analysts with 40
more information and insights to encourage them 30 35%
to think of marketing strategies in this way.
20
22%
10
Figure 16: Those who do analyse A&P are significantly more 0

Daily Weekly Monthly Quarterly Rarely or Never
likely to believe that ‘brand/marketing’ is ‘very important’ in their
analyses of companies Participation in earnings calls
100
90
% who felt ‘brand/marketing’ is very
80 83%
important in their analyses
70
60 63%
Second, analysts who followed companies’ A&P Taken together, these three findings suggest that if
50
spend were also more likely to say that brand/ more businesses encouraged analysts to examine
40
marketing was very important to their analyses of their A&P spend, and the companies themselves
30
companies (83% vs. 63%) (Figure 16). provided more information and insights on how this
20 spend was contributing to the company’s longer-
Third, those analysts that most frequently engaged
10 term performance, attitudes could shift even further
with companies through earnings calls were the
0 towards viewing marketing as an investment in the
Analyse A&P Do not analyse A&P most likely to agree that A&P spend should be
future growth of the business.
capitalised (Figure 17).

Over two thirds of analysts wanted to see analysts’ engagement with, and understanding of, Figure 19: How is cutting marketing and R&D spend perceived?
changes to how intangible assets are reported companies’ marketing grows, the perceived value
60
on and accounted for created by marketing budgets can also increase.
It should probably not be surprising that, given the We discuss some ideas on how to improve 50
52%
interest in marketing expenditure, 67% of analysts communication, both within companies and 40 44%
47%
also wanted to see changes in how intangible externally, about corporate marketing strategies 30 36%
assets were accounted for, and reported on in part four of this report.
20
(Figure 18). As our previous findings show, as
10
0
Figure 18: Thinking about the companies you cover, would you like to see a change in the way intangible assets are accounted for and reported on? It is a positive cost-saving It is a short-term fix with long-
measure term negative consequences
Key: Marketing spend cut R&D spend cut
70
60
67% There is more tolerance for cuts in marketing
spend than there is for cutting R&D spend
50
We asked analysts how they would perceive an
40
announcement of cuts to marketing spend from a
company they were analysing. As shown in Figure
30 19, 52% of analysts saw cutting marketing spend as
a positive cost saving and only 36% said they would
20
regard a marketing cut as a short-term fix with
10
18%
15% negative longer-term consequences. Contrast this
with the same audience’s lower tolerance of cuts in
0 R&D spend. For R&D, only 44% said they would view
Yes No Not sure such a reduction as a positive saving and 47% would
regard it as a short-term fix with negative long-term
consequences (Figure 19).

Elements of R&D spend are categorised as capex A company that can convincingly incorporate its For example, analysts who strongly agreed that
for accounting purposes, whereas we know that use of marketing expenditure into its overall growth marketing supported organic growth were also
marketing expenditure is wholly treated as opex. story to investors may enjoy benefits to the long- the most likely to see a marketing cut negatively
For the reasons discussed earlier in this report, term performance of its share price. However, so as a ‘short-term fix with long-term negative
when companies need to make quick cuts that will many factors affect share price movement that it is consequences’. Among all those who ‘strongly
impact their P&L, they will usually focus primarily on hard to isolate the direct contribution of marketing. agreed’ that marketing supports organic growth,
reducing their operating expenditure. 45% took this negative view of marketing cuts. As
The evidence from our analysts’ survey is that the
Figure 20 shows, this dropped to 36% among those
This might explain why analysts might prefer to more that analysts examine and know about brands
who only ‘agreed’ that marketing supports organic
see one of the companies they track cancel and marketing, the more supportive they are about
growth, dropping down to 11% among all those who
planned spend on marketing rather than on R&D. marketing expenditure and the less likely they are
were either unsure about or disagreed with the link
In addition, the link between spend on R&D to see marketing cuts as a positive move. But much
between marketing and organic growth.
projects and future growth opportunities for the more education is needed.
business is well understood. Using the same
justification that marketing spend is an investment
in future growth is less common. Figure 20: Based on whether or not analysts agreed that marketing supports organic growth, their view of marketing cuts differed
The marketing industry can help

% see marketing cuts as a short-term fix with long-term negative consequences
solve this knowledge gap
The advertising and marketing industries tend to
focus their messaging on the danger of reducing
marketing expenditure during recessions and other
crises. Arguably, the case also needs to be made
during more regular phases of the economy.
These industries can also educate the stock
markets on the sustained, quantifiable financial
contributions that effective brand building
marketing can make to future sales, profit margins,
and pricing power. Key: Strongly agree marketing supports organic growth Agree marketing supports organic growth Unsure/disagree marketing supports organic growth

If marketing expenditure is to be regarded, at least Why don’t more analysts prioritise Figure 21
64%
in part, as an investment in future business growth, marketing effectiveness?
then the connection between how a business When we asked analysts whether marketing
develops its brands through effective marketing and expenditure on advertising and brand
its organic revenue growth needs to be consistently communications should be made more effective,
and persuasively made clearer to analysts. answers varied.
Some of our qualitative interviews provided further We looked at how analysts answered this question of
of those who agreed A&P should
insights into why analysts could be relatively whether A&P should be made more effective based be capitalised thought marketing
sanguine about reduced marketing budgets. on how they answered the question of whether A&P expenditure was an investment that
should be treated as capital expenditure. Of all those could be made more effective
One analyst said cuts in marketing spend
who agreed A&P should be capitalised, 64% also
could provide a warning sign about the health
thought this spend should be made more effective
of a company, particularly in high-end/luxury
(Figure 21).
categories, but added that ‘managements According to this view, company leaders should focus
know best’ when it comes to marketing spend, Among those who only ‘somewhat agreed’ with A&P on minimising the impact and cost of marketing on
suggesting that managers could be reducing being capitalised, disagreed or were neutral about the business, rather than on putting too much effort
marketing spend for good reasons. capitalisation, less than 50% thought A&P should be into making marketing spend more effective.
made more effective.
Another analyst said a marketing budget cut The more that analysts are presented with stories
could be justified if there was evidence that a new One possible explanation for these views is that and evidence that frame marketing expenditure as
product being marketed was not working or if the some analysts think that since a company’s capital an investment that enhances profits or sales, the
company believed that marketing funds were being expenditure typically involves large investments in its more they can be expected to want companies
spent inefficiently. long-term future, it needs to be spent as effectively to optimise the effectiveness of this spend and to
as possible. If marketing spend were treated as maintain it throughout economic cycles.
It is self-evident that some marketing projects are
capex and not opex, it should therefore be held more
more effective and efficient than others. Given the Next, we will look at some examples of large
accountable for its effectiveness.
evidence that many analysts believe marketing companies that have justified keeping up
expenditure lacks transparency and robust metrics, Conversely, where analysts don’t support treating marketing spend by defending it as an investment
it is perhaps not surprising they are accepting of marketing as capex, they are probably more likely to that underpinned their ability to raise prices and
spending cuts in this area. think of marketing as primarily a cost to the business. increase profits, even in difficult conditions.

Part three:
Evidence from
global brand
owners
on marketing,
price and profit
When large companies present their business Figure 22: Corporate priorities in the next 12 months
growth strategies to financial markets, they

typically aim to explain both how their plans
% of CFOs who rate each of the following as a strong
position the company to navigate the specific priority for their business in the next 12 months
conditions in its category as well as trends in the
wider economy. Reducing costs 55%
In the post-COVID environment, these trends

have included persistent inflationary pressures on Increasing 46%
cashflow
the cost of energy, raw materials and labour, and
high interest rates that make company debt more Introducing new
products/services or
expensive to service. expanding into new 32%
markets
Unsurprisingly, polls such as the Deloitte UK CFO
survey (Figure 22) have identified cost reduction as Reducing leverage 20%
a priority for CFOs. To minimise the business risk

from inflation, companies have sought, in addition Increasing capital
expenditure 17%
to direct reduction of their costs, to increase prices
to prevent input inflation from reducing profit
margins. In the McKinsey Global CFO Survey 2023, Disposing of assets 16%
interviewees saw increasing prices and reducing
costs as by far the two most impactful strategies
Expanding by 15%
for navigating macroeconomic stability (see Figure acquisition
23 overleaf).
Raising dividends or 6%
share buybacks
0 10 20 30 40 50 60
Source: Deloitte UK CFO Survey Q2 2023

Figure 23: Companies’ most impactful strategies for managing macroeconomic volatility* In theory at least, a price rise has a financial
advantage over an increase in sales volumes
because selling at a higher price should not add
any extra cost to the company, whereas selling
more units normally would involve extra costs. The
Raising prices to e
nsure margins 63% main argument against price rises is that even a
small increase in sales price will usually deter some
Reducing exposure to fixed costs 52% buyers or make them switch to a rival supplier, and
a significant loss in sales volume could wipe out the
benefit in increasing the average selling price.
Liberating working capital 41%
Based on sales data from many years, companies
Reallocating investments across
have models to predict a brand’s price elasticity
40%
the organisation’s portfolio or the change in demand for the brand with any
movement in its price (whether that is a price rise
Increasing the organisation’s portfolio
of alternative suppliers 26% or a price cut).
What is interesting about the trend in recent
Increasing the use ofhedging strategies 16% financial results from major companies in the
Consumer Packaged Goods (CPG) category,
Signing long-term supply contracts 15%
however, is that when businesses have put prices
up, their sales volumes have tended to fall by
less than expected by either the companies or
Reviewing the organisation’s 7%
energy-consumption mix their analysts.
When companies have been asked about this,
Increasing use of derivatives 6%
to reduce interest-rate exposure they have often explained that the strength of the
0 10 20 30 40 50 60 70
brands in their portfolio enabled them to make
demand for their brands less elastic – or responsive
– to price rises.
Source: McKinsey. Global CFO Survey 2023
*Respondents were asked to rank up to three strategies, with one being the most impactful. Those who answered ‘other’ or ‘don’t know’ are not shown

For instance, Figure 24 is a chart based on figures Figure 24: Conagra’s large price rises had little impact on its price elasticities
from Circana showing the relationship between
the percentage changes in average price per unit
and price elasticities at Conagra, the US owner of 21% 0.0
multiple brands in food categories such as cooking
oil, frozen foods and hot dogs.
17.6%
16% -0.1
The chart shows that although the company made 16.8%
15.4%
a series of double-digit average price increases
over several quarters, its price elasticities remained 12.1%
11% -0.2
basically the same, at least until the most recent
quarter. It would have been reasonable to expect to 8.7%
see more significant movement in price elasticities. 6% 7.1% -0.3
5.5%
This was not the only unexpected pattern seen in 4.3% 4.2%
the financial results announced by CPG companies. 2.1%
2.9%
1.9%
Almost uniformly across the sector in Q2 2023, 1% -0.4
for instance, companies reported headline results

ahead of market expectations. For example, -0.52 -0.52
-4% -0.52 -0.53 -0.5
Nestlé reported 8.7% organic revenue growth for -0.55 -0.54 -0.55
-0.57 -0.55
Q2 vs. 8.1% predicted by the FactSet consensus
-0.61
of forecasts. PepsiCo delivered 13% organic -9% -0.64 -0.6
-0.64
revenue growth, ahead of the 10.3% predicted.
Similarly, Danone, Unilever, P&G, and Coca-Cola all
surpassed market forecasts. -14% -0.7
1 21 21 21 2
12 12 22 22 22 12
3 23 23 23
A key driver of these better-than-expected Q Q
2
Q
3
Q
4
Q Q
2
Q
3
Q
4 Q Q
2
Q
3
Q
4
performances was the increased average price at

which companies were able to sell goods.
Key: Conagra price per unit % change vs. YA Conagra price elasticities
Source: Circana POS and Circana price elasticity, Total US-MULO+C, Edible xBeverage, Rolling 52-week periods ended 28 May 2023

Figure 25 charts the change in underlying sales at
Figure 25: Unilever net underlying sales growth (USG) = underlying pricing growth (UPG) + underlying volume growth (UVG)
Unilever during eight consecutive financial quarters.
During much of the period shown, Unilever’s growth
13% increase in brand and marketing in underlying price consistently more than offset
investment 2022 vs. 2021 small declines in sales volumes at the company
15%
to deliver an overall net growth in underlying sales.
In Q2 2023 this pricing growth contributed to the
Q2 company announcing financial results that beat its
10.6% underlying
10.5%
pricing analysts’ forecasts. Even allowing that inflation was
9.2%
growth was driving pricing growth, one might have expected
10% 8.8% 8.2%
consumers to switch to lower-priced goods which
7.9%
7.3%
would have resulted in bigger drops in sales
volumes.
During much of the period where the chart shows
4.9%
Unilever reporting higher levels of price-led
5%
underlying sales growth, it had increased its spend
on brand and marketing investment. In 2022, for
2.5%
instance, the company spent €7.8bn on brand and
marketing investment – up from €6.9bn in the
Q3 21 Q4 21 Q1 22 Q2 22 Q3 22 Q4 22 Q1 23 Q2 23
previous year. In autumn 2023, Unilever updated
0% markets that it was on track to report another
annual increase in full-year spend on brand and
marketing for its 2023 financial year. For the first
half of the 2023 financial year, Unilever said it had
already spent an additional €400m year on year
on brand and marketing investment. Any increase
-5%
in marketing investment would take a while to have
an effect so we will need further data to see the full
Key: USG UPG UVG
impact on the group’s performance.
Source: Adapted from company presentation

These figures cannot suggest more than a potential How does this performance translate
correlation between increased brand and marketing “Whenever you have a very strong into extra profits in the long term?
investment and pricing-led growth at one group. brand with very strong benefits, First, we should be aware that small percentage
By themselves, they cannot tell us whether other consumers tend to be very loyal and increases in earnings can mean hundreds of
groups also increased prices by the same amount millions in extra profit at companies of this size.
follow those brands.”
without increasing their marketing spend. Danone As a theoretical exercise, and not a piece of
investment advice, we could look at PepsiCo. In
However, across the sector, there has been a
2022, PepsiCo generated $86.4bn of revenues.
similar pattern of companies reporting sales growth,
When asked to explain their ability to increase On this basis, if it grew its organic revenues
led by price rises typically above inflation, and
prices without experiencing predicted declines in in the following year by 10% organic revenue
saying brand marketing investment contributed to
sales volumes, several companies have said the growth, rather than its previous guidance of 8%,
their results.
competitive strength of their brands, supported the company would generate an extra $1.7bn of
Consequently, it has been common for CPG by marketing spend, enabled them to raise prices revenue. If 30% of this revenue translated into profit,
companies to raise their guidance for analysts and without losing too many sales. that would mean the company made an additional
investors on what they think their full-year (FY) $518m of operating profit.
financial 2023 results are likely to be. Danone explained: “Whenever you have a very
strong brand with very strong benefits, consumers
For example, Coca-Cola raised its FY organic tend to be very loyal and follow those brands.”
revenue growth target from 7–8% to 8–9%. PepsiCo
raised its top-line organic growth guidance from 8% Coca-Cola said: “Our recipe for success is
to 10%. Colgate-Palmolive raised its forecasts from unchanged. We continue to deliver on our strategy
through a combination of world class marketing “Our recipe for success is
4–6% to 5–7%.
and innovation, excellence in revenue growth unchanged. We continue to
These may not sound like dramatic rises unless we management and strong execution.” deliver on our strategy through
remember the size of the companies involved. Also, a combination of world-class
guidance in this sector has tended to be on the Virtually, all the players in this space announced
increases in marketing spend. Nestlé said it would marketing and innovation,
conservative side and it may be that, when full-year
results are published, even these raised guidance increase its marketing as a percentage of sales excellence in revenue-growth
figures may prove to have been under-estimates. by 100 basis points (i.e. 1%) in H2 23. For instance, management and strong execution.”
Coca-Cola
Colgate-Palmolive grew A&P spend 20% in Q2 and
by 17% in H1, and PepsiCo also said it had already
grown its marketing spend by double digits.
Again, in theory, if much of this additional revenue Figure 26: Hypothetical PepsiCo 2023 extra operating profit from
Consistency is the key to achieving
was due to the company’s ability to raise prices 10% organic revenue growth vs. 8%, at a 30% drop-through rate of compound effects
revenues to profits ($m)
without losing disproportionate sales volumes, it In their communications to analysts and investors
could be argued that the company would have a 800
about their financial results, several of the CPG
better chance of sustaining this level of revenue 700 companies previously discussed underlined the
in future. This view is based on the argument that 600 importance of putting sustained, consistent funding
if consumers didn’t baulk at paying the increased 500 into marketing to support brands in their portfolios.
price in the short term, they would be less likely 400 When Procter & Gamble was asked on one of its
do so once they became accustomed to the new
300 conference calls about the correlation between
price. By contrast, companies often generate
200 the company’s increased marketing spend
short-lived increases in sales volumes by offering
and increases in its market share, the company
time-limited price discounts or other promotions. 100
representative said:
But these promotions either simply displace sales 0
2023 2024 2025 2026 2027 2028 2029 2030
that would have happened at full price anyway or
bring in temporary buyers that will leave when the
promotion ends – and they erode profit margins in
“It’s not instantaneous... We have
categories where the purchase cycle
the process.6 shows the extra operating profit this would translate is once every six months or once every
Even if a company only experiences one significant to over the period at PepsiCo, compared with if year, even. And so, we look at it (i.e.
step up in its annual revenue and then reverts the company only generated 8% organic revenue the impact of increased marketing
to a steadier annual growth rate, then the fact it in 2023 and 5% annually for the rest of the period. investment on market share) obviously
would be growing from a higher revenue base can Although the company’s growth rate only differed over longer periods of time.”
translate into a significant amount of extra profit by in one of these years, over the total period the Procter & Gamble
the end of the period in question. scenario with 10% revenue would generate about
an extra $5bn of operating profits for the company.
Figure 26, for instance, has a theoretical chart about Asked specifically about its investment in
potential future operating profit levels at PepsiCo This theoretical exercise isn’t meant to illustrate advertising, a Colgate-Palmolive spokesperson said:
(purely to illustrate this hypothesis not as a piece that it is easy to generate revenue growth at “Advertising doesn’t respond immediately. It takes
of investment advice). It is based on the premise large companies. It is meant to illustrate the quarters after quarters of consistent growth... And
that PepsiCo generated 10% of organic revenue in importance of compound effects on company that’s clearly the strategy because, over the long
2023 and 5% for every year afterwards until 2030. It profitability; compound effects are also relevant to term, consistent levels of advertising play out for
understanding how effective marketing works. brands the best.”
These comments allude to a truth about effective Over time, effective marketing also helps to build However, from the remarks by Colgate-Palmolive
marketing that is obscured when businesses think of the overall valuation of brand assets. This brand and P&G quoted above, it seems that these
marketing purely as a short-term cost to be managed valuation will be made explicit if those brand assets companies do think of their marketing expenditure
within one accounting period and not as a longer-term are later sold to another business, since the value of as a sustained investment aimed at delivering
investment in the future growth of the business. the acquired brands will be accounted for as assets compound effects over a period of time.
on the purchaser’s balance sheet.
That truth is that sustained spend on consistently This might be because, as the owners of big
effective marketing does not produce one simple The flipside of the belief in the potential compound brands, these companies have already seen first-
additive effect, but a variety of effects that can effects of marketing expenditure on business hand evidence of this compound effect in action.
accumulate over time to provide compound growth is that any interruption in marketing spend According to a recent presentation at the IPA
benefits for the marketer. may not just have a negative impact on growth in EffWorks Global 2023 conference, brand size is the
the period in which the interruption occurs, but on biggest single potential multiplier of profitability
These effects typically include several or all
its longer-term base of revenue. in advertising. Having studied multiple sources
of the following:
of evidence, including case studies in the IPA
Even if the spending cuts were restored in future
• creating more awareness of and desire Effectiveness Databank, this research concluded
years, and the company growth rate recovered,
for the brand that one of the factors behind advertising
it would be growing from a smaller base than if it
• attracting new customers directly or indirectly campaigns that generated the highest returns was
had not missed out on those extra basis points of
by winning new distributors that they involved bigger brands.8
growth.
• extending the brand into new categories Certainly, another big brand owner convinced that
Obviously this is a moot point for anyone who
marketing is an investment is Tesco. As Tesco CEO
• and/or persuading buyers that the brand is thinks that marketing expenditure is either lacking
Ken Murphy said:
worth purchasing at a higher price in transparency or does not directly contribute to
financial metrics, such as the company’s sales price
Each of these effects is contributing to the potential or total revenues. If they don’t understand how
reach and revenue base of the brand. Case studies effective marketing works, or even believe it can “I don’t see marketing as a cost. I see it as
and research reports published by the IPA and work to improve financial metrics, they are hardly an investment. We obviously challenge
other bodies have shown that these marketing- likely to believe that it will work cumulatively. ourselves to optimise our marketing and
created effects can extend over several years, with make sure we get the best bang for our
much of their value coming in the years after the buck, but we don’t see it as a cost line to
marketing first ran.7 save money from.”
Ken Murphy, CEO, Tesco

Part four:
How to make a
more persuasive
case that marketing
is an investment

In this final part, we will look at how the case for Evidence to support marketing as an investment Figure 27: Longer-running ad campaigns are
regarding marketing as a long-term investment can exists but needs to be better known more likely to be very profitable
be better made to convince more people, including The IPA publishes detailed evidence that spending
% cases reporting very large

15%
15 14%
specific financial communities, such as corporate on effective marketing can be an investment which
profit growth
finance teams and accounting bodies. delivers a variety of quantifiable improvements to 10 9%
key financial metrics over extended time periods. 8%
We recommend that marketers act in five areas
This evidence is contained in hundreds of rigorously 5
to make the case for marketing as investment 4%
proven case studies that have won prizes in the IPA
more convincing. 0
Effectiveness Awards. 3 months 6 months 1 year 2 years 3 years +
• Share more widely with analysts evidence Source: The Long and The Short of It, IPA, 2013, and IPA Effectiveness Awards cases 1998-2010
For more than 40 years these biennial awards
from their own companies and trusted industry
have required entrants to show the financial value
sources about the longer-term financial benefits to adapt these characteristics into successful
created by their marketing spend and to prove
of effective brand building marketing. strategies for their own organisations.
this value was not attributable to other factors.
• Be more consistent in demonstrating, internally Organisations that have persuaded the awards For example, the 2013 IPA report, The Long and
and externally, how marketing addresses the judges that their marketing generated incremental The Short of It, found Effectiveness Awards cases
strategic and financial priorities of businesses. financial gains over several years include – to running more than a year were more likely to report
• Use different language to encourage marketing name but a few – Tesco, Direct Line Group, Audi, very large increases in profit than those running
to be bracketed with other long-term Barclays Bank, Diageo, McDonald’s, Mars Petcare, a year or less (Figure 27). The report argued that
investments by their company. Specsavers and Cadbury (Mondelez). The fact that the best business outcomes were achieved by
brand owners of this scale have put their names to balancing short-term activation marketing with
• Embrace a wider range of techniques to published cases of effective marketing that ran over brand building marketing. Activation marketing is
evaluate marketing investments than just five or ten years, or in some instances even longer, used to stimulate quick responses and immediate
ROI calculations. should by itself provide benchmarks and arguments sales while brand marketing builds the fame, image
• Continue the wider dialogue about reforming the for anyone trying to encourage their organisations and other values that over time foster demand,
accounting treatment of marketing expenditure to view marketing in a longer-term perspective. win more customers and enable a brand to charge
and brands. higher prices.
The data included in these individual cases is
analysed in broader IPA reports. These aim to If companies reduce spend on sustained marketing
identify the common characteristics of the most designed to enhance their brands, they risk missing
effective cases, and to guide marketers in how out on the full potential gains from effective marketing.

The IPA cases and reports should be better Marketing must show how it addresses the Effective marketing can also help to open up new
known given that they are easily and cheaply financial and strategic priorities of the business markets for the company. As an example, see the
available from its website. The annual EffWorks Since the most important audiences to sign off 2020 IPA Effectiveness Award-winning case study
Global conference, run by the IPA, also provides significant marketing expenditure will be the finance from Baileys, which showed it was marketing insight
an overview of new areas of evidence and best team, CEO, and the rest of the board, it is important and communications, more than new product
practice. Corporate marketers should also be that arguments for marketing expenditure speak development, that enabled the cream liqueur to
encouraged to share their evidence of effective to the financial and strategic priorities of these reposition itself worldwide as an all-year adult treat
marketing in communications to analysts and audiences and the metrics they value. for younger consumers that was “part cake, part
investors. At the very least, wider knowledge of booze, pure pleasure”.9
In the Deloitte survey of UK CFOs’ priorities for the
these resources could help tackle perceptions
following year, the number one CFO priority (cited It is not always easy for marketers to stay on top of
of a lack of transparency and credibility around
by 55% of respondents) was reducing costs. If the the changing priorities of finance chiefs and other
marketing expenditure and marketing metrics.
CFO’s focus is on cost reduction, then an opex item members of the board, or to argue convincingly
such as marketing that appears relatively easy to that marketing programmes are the best way of
cut is always going to be in the line of fire. supporting these goals in a short timeframe. There
may be no marketing representatives on the board,
But the same survey signals opportunities for
and marketers may not be part of the company’s
marketers to frame their budgets in other ways. The
conversations with its investors and analysts. That
second and third priorities of CFOs were increasing
can make it harder to understand some of the
cashflow (46%) and introducing new products/
internal and external pressures and questioning that
services or expanding into new markets (32%). If
the company’s leaders are facing.
generating more cashflow is a pressing financial
goal (when is it not?), then presenting solid evidence What is within senior marketers’ own power,
about the cash generated by past marketing however, is to ensure they follow the information
programmes – when the marketing brought in that is available through the company’s financial
new customers or supported a higher brand price reports, presentations and conference calls.
point – could convince the CFO that the cash spent
It is even more important that a marketer is
on marketing now and in the future will pay back
comfortable with the detail of the P&L and cashflow
in terms of more cash for the business within a
statements. Knowing the different profit margins
reasonable timeframe.
Hannah Gillett, Senior
Communications Strategist,
on individual product lines or different distribution
Our LEGO Agency
markets, or understanding how movements in

interest rates, currencies or commodity prices can
affect the company’s overall finances, can explain
why investments that seem attractive to a marketer
may appear less so to a finance director. It may
even turn up areas of cash cost and inefficient
spend that could be saved or even redirected into
the marketing budget.
Interest in the financial detail will probably not come
naturally to marketers, but it is worth investing time
in staying on top of the financial workings of the Describe marketing in the language Thinking of marketing as purely a cost makes it
business if marketers are to show CFOs that they and terminology used for investment easier to conceive of a marketing cut as a positive
understand exactly how the company makes (and Language matters. The words and terms used step for the business and downplays its potential
loses) money, and to convincingly demonstrate how to describe marketing shape how it is, or is not, longer-term negative impact.
what they do benefits the finances – and cutting perceived, especially by non-marketers.
marketing budgets would be a false economy. But is marketing really a ‘cost’ on a company, in the
As we saw in the investment analyst survey, same way that its electricity bill is a ‘cost’, when
The brute reality is that when a company is really respondents divided between those who viewed effective marketing can directly generate sales and
struggling, many different parts of the business can marketing expenditure as primarily a cost or an contribute to the value of the company’s brand
be expected to make cuts, and marketing may not investment and a significant number who thought it assets, and its electricity supply cannot directly do
be able to avoid these entirely. The pressure will combined elements of both. either? The former can support future compound
be on marketing to show it is a ‘team player’ and growth at the business, whereas the latter is merely
shoulder its share of the impact of cuts. Words count. If a company says it is cutting
a cost of being able to do business at all.
costs, this will generally be seen as a positive
The more marketers are seen to understand the development for its future profitability and As explained below, accounting rules currently
bigger picture at the business, and to communicate competitiveness. If the same business says it is prevent companies from classifying marketing
how their activities fit into it, the better position they cutting investment, this is much more likely to be expenditure as capex on their financial reporting
will be in to argue for any cuts to be implemented questioned, or even criticised, as limiting its future statements. However, there is no reason why in less
sensitively and to make the case for restored growth. The size of the cut discussed may involve formal contexts companies could not use a term
marketing spend to be a key driver of recovery at exactly the same cash sum, but the exact word such as ‘intangible capex’10 to describe marketing
the business. used would shape how it was viewed. expenditure designed to build the company’s
brands into business assets of enduring value.
Groups such as Unilever already describe their Although ROI has its uses, this is not the Third, and perhaps most seriously for champions
marketing budgets as investment when they predominant technique used by financial teams to of effective brand marketing, ROI calculations can
present their financial results to investors. evaluate investments. If marketers want to frame encourage a bias towards the short term. ROI is a
their budgets as essential areas of investment in the ratio of return to investment spend. Some forms
When it is the norm for companies to talk about
company’s future growth, they should be prepared of marketing, such as performance media, are
investing in marketing and to adopt terms such as
to use the techniques and language used by designed to generate quick responses from existing
‘intangible capex’, it should also be more customary
financiers, such as the discounted cashflow model buyers or people currently ‘in the market’ to buy
to talk about the appropriate milestones and longer
(DCF) technique and net present value metric the brand. Other marketing, such as brand building,
payback periods for some marketing investments,
discussed below. can generate some quick sales but will primarily
namely for brand building. It will also help
accumulate sales over a much longer period by
marketers explain that, like all investments, there is There are also some specific challenges related to
building brand awareness, image or some other
some element of risk involved, but there are ways ROI calculations.
attribute amongst people not currently looking
to evaluate and minimise this risk in marketing as in
First, ROI does not take into account the time value to buy the brand or who have never bought it.
other areas.
of money (the fact that money held today is worth Effective marketers know how these different types
more than the same sum held at a future date of short-term and longer-term marketing work best
because of its earning potential in the interim). It in combination and try to balance them.
is factoring in the time value of money, and how
One danger of being over reliant on ROI to evaluate
that money could have been alternatively used
marketing expenditure is that it can make some
over a period, that enables DCF models to help
short-term activities look as if they generate very
companies evaluate the returns from the money
high returns in a short period and can encourage
invested compared to the payback that the
Embrace a wider range of techniques to evaluate companies to skew investment towards them. Yet,
company could have generated from putting that
marketing investments than just ROI calculations when marketing expenditure is fully evaluated and
money to other uses.
Many marketers will use return on investment (ROI) its impacts on sales attributed to different activities
calculations to evaluate the financial payback from Second, compared to DCF models, which are pretty over a longer period, it may be that weighting
a piece of marketing expenditure. Typically the standard, ROI can often be calculated in different spend towards consistent brand build marketing
formula involves calculating incremental revenues ways by marketers. Sometimes the ROI stated is would have generated bigger financial gains, and
or profits generated minus incremental costs from for revenue and sometimes it is for profit, and the that is what research studies from the IPA and
the extra sales, and then dividing this net number calculation can be made over the whole period or others have consistently concluded.11
by the incremental marketing expenditure involved in the form of annualised ROIs.
to give a ratio or percentage for the ROI.
Since ROI is a ratio, it can also be manipulated There are several important factors in the though firms obviously generate value beyond
by the level of investment involved. If the ROI methodology. The primary one is the weighted that timeframe.
data over a period seems to be showing that the average cost of capital (WACC) rate, which is the
Figure 28 is an example of a DCF for a
returns from a marketing project have peaked or rate at which future cashflows are discounted back
hypothetical new marketing campaign designed
have fallen below a target figure, a company might by to reach their value today (so the longer out the
to run over several years. The investment is the
decide to stop spending on it. However, although cashflows are, the more they will be discounted
marketing spend. The returns are improved
the ROI had dropped, that does not necessarily back). The key input factor into the WACC rate is
sales. The net return is the investment minus the
mean that the company would not profit, albeit at the risk-free rate, which is often the rate paid on
additional sales. The discount factor is the rate at
a lower rate, from continuing to invest. If it stopped US Government debt or the equivalent in major
which the returns are discounted back by using
spending based on the ROI data, it could actually economies.
the WACC rate, which produces the discounted
end up with less net absolute profit than if it had
The second is what is called the terminal growth cashflows of the returns line (net returns x discount
kept funding the project.
rate which is used to drive what is called the factor), and the sum of the cashflows is the sum of
Finally, ROI doesn’t put a figure on the ongoing terminal value (TV). The terminal value captures the five years’ explicit forecasts. The returns beyond
residual value created by the investment beyond the value created beyond what is called the the explicit timeframe are captured in the terminal
the period covered. This is significant in our context explicit forecast period. Except in exceptional value, which is the terminal return based on the
if you believe that effective marketing adds to the circumstances, most analysts only give explicit last year’s explicit net return and adjusted for the
value of a brand which can endure for many further forecasts for five years, or seven years at most, perpetuity growth rate.
years, or even decades.
Given these limitations, ROI does not tend to be Figure 28: Hypothetical
used as a valuation metric within the investment DCF calculation of marketing Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
investment (£) Investment (marketing spending) -100 -100 -100 -100 -100
community. Generally analysts use the DCF model,
Returns (improved sales) 25 75 150 250 375
which captures future marginal cashflows, adjusted Discount factor 100% 91% 83% 75% 68%
for the time value of money, over the period of the Net returns -75 -25 50 150 275
investment. It would then add in the sum of the Discounted cashflow of the returns -75 -23 41 113 188
discounted marginal cashflows from the period Sum of cashflows 244
and subtract the investment cost to arrive at the Growth in perpetuity 5%
Terminal cashflow 289
net present value of these cashflows as a way of
Terminal value 3,944
measuring the attractiveness of the investment. Total value 4,189
Source: IPA/Liberty Sky Advisors

In Figure 28, the total present value generated First, rather than provide an overall snapshot, as Changing accounting rules on marketing
by the hypothetical spending of £100 a year ROI does, a DCF shows the net present value of an would require a wider dialogue
indefinitely on marketing is £4,189. What the investment which generates higher financial gains To observers it may seem strange that the relevant
calculation also demonstrates is that, while the net over the middle and end of the period and not at accounting standard (IAS 38 Intangible Assets)
returns are negative in the first two years, they turn the beginning. This description typically fits the defines an intangible as a non-monetary asset
more positive as time goes on and the compound trajectory of brand building marketing. without physical substance whose cost can be
effect of marketing spending becomes more measured reliably and that generates future
Second, the terminal value puts a figure on the
pronounced. economic benefits. To many, this is a description
ongoing value created for the brand after the end
that would seem to fit a brand.
There are a couple of main reasons why a DCF of the period of marketing. To put this in context, if
model makes more sense for evaluating returns Coca-Cola suddenly stopped marketing, it would But IAS 38 does not permit the capitalisation of
from brand marketing than the current preference still see the continuing benefits of its previous advertising spend, mainly on the grounds that other
for ROI. marketing for years, if not decades, to come. A ROI factors, such as customer service, contribute to the
calculation would not be able to estimate that value. building of brand equity so it can be hard to define
the exact contribution of marketing. To capitalise
If marketing is treated as an investment, then
long-term brand building marketing, this spend
its practitioners should be comfortable using
would need to be separated out from shorter-term
techniques, such as DCF models, used to evaluate
marketing spend, which is not straightforward.
other types of investment.
The international accounting standards (as set by
Whatever models marketers use, they need to
the International Accounting Standards Board (IASB))
ensure that they can defend their assumptions
and the US accounting standards (as set by the
and the forecasts behind the model. Focus on the
Financial Accounting Standards Board or FASB)) say
inputs, not the outputs. Boards know models can
advertising must generally be expensed.
easily be manipulated to suit a desired outcome,
so they tend to focus on the quality of the inputs. The IASB gives the reason cited above – namely,
No forecast will be 100% accurate but marketers that it can be hard to separate out what exactly has
should be able to show that it is based on sound contributed to the building of a brand. The rationale
assumptions, ideally developed in co-operation for the position taken by the FASB is more based on
with finance and other parts of the company, and the belief that the future economic benefits of
features the most up to date evidence. advertising cannot be reliably measured.

Figure 29: Decreasing accounting relevance by vintage year
However, there is a growing view that accounting Just to take the more obvious questions, if some
of public companies entering a US stock exchange standards are increasingly divorced from the marketing expenditures were to be capitalised
reality that more of the value of modern and some continued to be expensed, what
90
companies is created by intangible assets, such would be the criteria for separating marketing
31
80 as R&D projects, software and brands, than spend for these reasons? As capex is investment
70
physical infrastructure. for assets with an agreed value, what would be
the agreed methodology for companies to value
28 See Figure 29, from the publication, The End of
Accounting relevance (% R2)
R&D and SG&A* as % of sales

60 capitalised brand building expenditure? How
Accounting by Baruch Lev and Feng Gu, which
would brand owners account for this via
50 argues that since the 1950s companies’ financial
amortisation policies?
40 25 statements have less reflected the real value of
the business, as intangible investments have risen Getting the accounting treatment of marketing and
30 in importance. brands changed is a marathon, not a sprint. Yet
22 many of the negative or ambivalent perceptions
20 Nevertheless, industry standards that have been
about marketing expenditure can be tackled
used by millions of businesses and accounting
10
without accounting rules being changed. The first
practitioners in multiple territories for decades
19 step would be to increase information-sharing
0
are not easily changed. To do so usually requires
1950–59 1960–69 1970–79 1980–89 1990–99 2000–13 about marketing between companies and their
detailed consultations, time and confidence
analysts and investors. However, if the rules were
building to engage with a variety of interested
Key: Accounting relevance (left axis)
revamped as part of broader efforts to frame
R&D and SG&A* as % of sales (right axis) parties in different territories to work through the
brand building marketing as long-term business
practical implications of how any changes would
investment, the race will have been worth running.
*SG&A = selling, general and administrative expenses – many intangible investments are included in SG&A
Source: The End of Accounting – and the Path Forward for Investors and Managers Baruch Lev and Feng Gu, 2016 be applied and their impact.

Appendix

Appendix
An explanation of depreciation and Where depreciation and amortisation costs fall in hird, investments are not fully depreciated over
T
amortisation costs, and how they are treated the balance sheet is related to capex and opex. one year but over a period of time depending on
from an accounting standpoint When it comes to capex, there are three key the asset. A factory, for instance, may be seen to
What are depreciation and amortisation (D&A) differences as to its treatment versus opex. have a ‘life’ of 25 years, which means that 1/25th
costs? These relate to the write down in value of its value will be depreciated every year. In effect,
irst, capex goes straight to the balance sheet as
F
for either tangible assets, such as buildings it means that the P&L cost (if not the cash one) of
an asset (it will also impact the cashflow statement)
(depreciation), or intangible assets, such as software investments is spread out over a number of years.
and will only impact profits in future years. Software
(amortisation). Typically, an asset will have a ‘life’ of a If a brand owner spent £10m on an advertising
costs, for example, are typically capitalised and
set number of years before it needs to be replaced, campaign, under current rules it would represent
then their amortisation cost is written down over
which will vary by the type of asset. £10m of expense in one year. If rules changed, and
several years.
it could be demonstrated that advertising delivered
Usually, assets are depreciated or amortised using
econd, when it is recognised as a cost through
S value over five years or more, then instead of a
the ‘straight line’ method i.e. the depreciation/
the P&L, it comes through the depreciation and £10m one-year expense, the company’s P&L could
amortisation cost is the same for each year. For
amortisation line. That matters because one simply include a £2m amortisation charge in the
example, if an asset costs £10m and has a life of 10
important financial metric that analysts and first year, resulting in an £8m improvement to its
years, then the annual depreciation/amortisation
investors focus on is EBITDA (earnings before reported profit or loss for that period.
charge will be £1m per annum. There are
interest, tax, depreciation and amortisation), which is
exceptions to this rule. For example, with television
commonly used as a measure of underlying profit.
and film content the costs are usually heavily
Such D&A charges thus do not impact the EBITDA
amortised upfront, i.e. in the early years, as that is
number. Therefore, if any marketing costs were
where most value will be generated, namely when
shifted to capex, and would appear on the P&L as
the film/programme is first shown.
amortisation charges, the company would be likely
to show a higher EBITDA (because the profit was
counted before adding in amortisation).

Endnotes
1. For evidence of the impact of marketing budget cuts
during the COVID pandemic, see EffWorks 2022.
2. The Board-Brand Rift, IPA, 2019.
3. ‘Chief executives really need to lengthen their
attention spans’, Financial Times, 4 October 2023
(subscription required).
4. For evidence of how share of voice in advertising
contributes to pricing power see ‘Brand power in
an inflationary market’, EffWorks Global 2023.
5. To compare answers to this question in the 2005
and 2023 surveys, we extracted responses from
the UK-based respondents in 2023.
6. See analysis of promotions in ‘Marketing in the
post-COVID economy’ presentation, EffWorks
Global 2022 conference.
7. For evidence that long-running campaigns are
more likely to be effective, see The Long and The
Short of It, IPA, 2013, and other IPA reports.
8. For evidence that brand size is a driver of
profitability in advertising campaigns, see
‘Managing for creative effectiveness’ presentation,
EffWorks Global 2023.
9. See ‘Baileys: The pleasure dividend’, IPA
Effectiveness Awards 2022 case.
10. ‘Advertising as intangible capex’™ is a trademark
of Liberty Sky Advisors.
11. For evidence that the most effective business
outcomes from marketing are produced when
spend is weighted towards brand building, see
Effectiveness in Context, IPA, 2019.
44 Belgrave Square Catchpell House
London Carpet Lane
SW1X 8QS Edinburgh
EH6 6SP
020 7235 7020 020 7235 7020
ipa.co.uk/effworks
@The_IPA
linkedin.com/company/TheIPA Copyright © IPA 01/24

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Marketing is

This report was written by Ian

Back to contents page Marketing is an investment | IPA | 2

Back to contents page Marketing is an investment | IPA | 3

Back to contents page Marketing is an investment | IPA | 4

Back to contents page Marketing is an investment | IPA | 5

Back to contents page Marketing is an investment | IPA | 6

Back to contents page Marketing is an investment | IPA | 7

Back to contents page Marketing is an investment | IPA | 8

Why is marketing often one of the first items

Back to contents page Marketing is an investment | IPA | 9

1. Even when business leaders view marketing 2. P

Back to contents page Marketing is an investment | IPA | 10

knowledge of brand building in their boardrooms

profitability for instance.

Source: The Board-Brand Rift FT/IPA 2019

Back to contents page Marketing is an investment | IPA | 11

business (Figure 3).

Need for more understanding in our organisation on how

The case for longer-term investment 27%

26% The need for stronger brand building skills

40% Source: The Board-Brand Rift FT/IPA 2019

Back to contents page Marketing is an investment | IPA | 12

and aim to track the broader movements in a share

and sell shares. This differs from ‘actively’ traded

Back to contents page Marketing is an investment | IPA | 13

Back to contents page Marketing is an investment | IPA | 14

Back to contents page Marketing is an investment | IPA | 16

Back to contents page Marketing is an investment | IPA | 17

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The strength of a company’s brands and

was most often selected with 79% of respondents

often cited than the quality of the company

While all the factors were considered important by

Back to contents page Marketing is an investment | IPA | 20

sales price (54%) or cashflow (52%).

When analysts were asked (Figure 8) which one 18%

support for sales volume (31%) and profit margin

that for sales price (9%).

Back to contents page Marketing is an investment | IPA | 21

However, a more useful contrast is with the overall

Back to contents page Marketing is an investment | IPA | 22

Key: 2005  2023 (UK sample only)

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Back to contents page Marketing is an investment | IPA | 24

Key: Do not analyse A&P  Analyse A&P

Back to contents page Marketing is an investment | IPA | 25

to capitalising A&P spend

Figure 16: Those who do analyse A&P are significantly more 0

Back to contents page Marketing is an investment | IPA | 26

Key: Marketing spend cut  R&D spend cut

Back to contents page Marketing is an investment | IPA | 27

The marketing industry can help

Back to contents page Marketing is an investment | IPA | 28

Back to contents page Marketing is an investment | IPA | 29

growth strategies to financial markets, they

In the post-COVID environment, these trends

a priority for CFOs. To minimise the business risk

Source: Deloitte UK CFO Survey Q2 2023

1. Even when business leaders view marketing 2. P

Key: 2005 2023 (UK sample only)

Key: Do not analyse A&P Analyse A&P

Key: Marketing spend cut R&D spend cut