The finance rationale for brand investment

When discussing brand investment with financial leadership, marketing executives need to move beyond traditional marketing narratives and focus on demonstrable economic outcomes.

What better way to have the conversation than with a case study from one of America's most successful and well-managed businesses: Costco.

In 2016 the then Costco CEO, Craig Jelinek, shared with an Atlanta TV station the many aspects of the business' success. He pointed to one particular product in store, saying, "Now, this brand here is no advertising, there's no overhead, there's just packaging. We don't advertise it. It’s just a brand."

The product? Batteries. The brand? Kirkland. The manufacturer? Duracell.

Duracell manufactures both its own branded batteries and Costco's private label batteries. The Duracell-Costco relationship offers a compelling illustration of brand economics that should resonates with financial decision-makers.

Note: Packaging is a critical marketing function, especially in FMCG. In an era where marketing is "tactified" to the point of being seen as little more than promotion/advertising, it's important to understand marketing's full capability in your business.

Price premiums

Despite the products' fundamental similarity,* consumers consistently pay a 25% premium for the Duracell-branded product at Costco and a 60%-80% premium at other retailers.

This price differential represents something far more consequential than consumer sentiment—it demonstrates quantifiable pricing power that generates outsized margins.

There are many definitions of brand and so I'd like to focus on brand outcomes. One of which is that brand drives above category margins.

Brand is the difference between the commodity value of a product (e.g., batteries or caffeinated water in a can) and the premium the consumer is willing to pay for the "brand experience."

Brand pricing power creates substantial financial impact. When consumers accept higher prices for perceived quality, organizations establish a self-reinforcing profit margin mechanism.

The math tells us everything we need to know about the value of brand driven price premiums: a 20% premium on a product with 30% margins increases profit contribution by 67%.

Brand clearly represents a form of financial leverage that accumulates significant value over extended periods. If this is perhaps a new idea to you, it's time to rethink brand.

Rethinking brand investment

Brand investment should therefore be evaluated within a broader strategic and financial context. It drives business outcomes, not just how consumers feel.

It functions as operational expenditure (OPEX) with characteristics of capital investment (CAPEX). It requiring sustained allocation over time to generate substantial profit and margin returns.

Unlike transaction-focused marketing that drives immediate revenue, brand development creates an intangible asset that yields long-term economic benefits. The extended return horizon necessitates consideration of several strategic factors:

1. Financial sustainability: Does the organization possess sufficient stability to commit resources toward returns that may require 12-36 months to materialize?
   1. Note: Brand marketing can in fact drive immediate revenue results, but not margin results.
2. Market dynamics: Does the sector value emotional connections or perceived quality? Categories characterized by commoditization or purely functional evaluation may offer limited potential for brand premium development.
   1. Note: This is a somewhat product-centric view of brand, whereas brand is the sum of all the associations consumers have with your offering. Even commodity products have brand power through finance terms, on-time delivery, and so on.
3. Competitive positioning: How entrenched are existing competitors with established brand categories? The investment threshold required to displace established competitors increases substantially with market maturity.

Margin tradeoffs: brand v. operations

Notwithstanding the long-term value delivered by brand investments, businesses facing immediate profitability imperatives often benefit from more direct interventions unrelated to brand marketing.

Operational efficiency initiatives, supply chain optimization, or product margin enhancement through design or procurement strategies, typically generate accelerated returns compared to brand development initiatives.

If in 2025 your business faces an existential crisis, I'd focus the marketing function on optimizing product, pricing, distribution, and advertising efficiency rather than longer-term margin enhancing brand investments.

That said, brand investment becomes increasingly valuable as companies mature and pursue sustainable competitive differentiation.

Organizations with strong brand positions achieve:

• 15-30% higher margins than category peers
• Increased customer retention
• Enhanced resilience during economic contractions

These advantages compound over time, creating a widening performance gap between brand leaders and undifferentiated competitors.

Strategic alignment with finance

The critical element driving above category margin results is strategic alignment between marketing and finance regarding timing and performance expectations.

Brand development represents not a tactical expense but a strategic asset development program requiring disciplined execution and appropriate measurement frameworks.

When evaluated through this lens, brand investment becomes a strategic choice with specific economic conditions for optimal deployment rather than a discretionary expense.

* The Costco brand and Duracell battery products are reportedly not identical. In some tests, Duracell batteries lasted about five minutes more than Kirkland and are about 17.5% more durable.