Branding – A Driver of Value

A LASTING PERCEPTION

It is quite astonishing that a discipline whose aims include that of changing the perception the general public have on an organisation or institution, would themselves struggle to alter the viewpoint held on its own purpose. This is the reality for the field of marketing and branding. It has been thought, and correctly so, that brands manifest their impact on the customer and product market (Keller and Lehmann 2006). For customers, branding simplifies choice, promises a quality level, reduces risk and engenders trust. These act as key determinants on the products or services that consumers purchase. However, it is the failure of many to look beyond these two points, and identify the significant financial impact that materialises from branding, that undermines the disciplines pivotal role in modern day business.

THE FINANCIAL IMPACT OF BRANDING

Brands have a major influence on consumer choice, on the willingness of consumers to pay premium prices and on the ability of a firm to attract top talent. In addition, a respected brand offers a firm an insurance policy, in terms of the market willing to forgive rare mistakes and it acts as an income stream through licensing revenue. All of the above result in a firm acquiring a competitive advantage over their competitor and a monetary value must be assigned to these. The monetising of such benefits is known as brand equity. In a study conducted in 2015 on the top publicly listed companies, Vomberg et al found that a one unit increase in brand equity leads to an increase of $80 million in cash flow during the following year in the services sector. In the fast moving consumer goods sector, they found that a one unit increase in brand equity leads to an increase of $30 million in cash flow during the following year.

THE PROOF IS IN THE PUDDING

As many of the elements that derive a good brand are non-physical, a firm’s brand is classified as an intangible asset. To highlight the importance of branding in modern day business, one must only look at the percentage increase in intangible assets in determining a company’s market value. In 1985, 32 percent of a company’s market value was determined by intangible assets. By 1995, intangible assets made up 68 percent of a company’s value, and in 2015, intangible assets accounted for a significant 87 percent of a company’s value (Barron and DeHaas 2016). In the midst of political turmoil in 2016 such as Brexit in the UK and the election of Donald Trump in the US, firms with strong brands were in a position to continue growing. In a recent Kantar Millward Brown study, it showed how the value of the Global Top 100 brands increased by 8 percent year-on-year during that timeframe.

BRINGING BRANDS INTO THE BOARDROOM

One would think, that a subject that drives such value in a firm would be top of the agenda for corporate board meetings. However, the opposite is true, a McKinsey report looking at the most prominent topics on the agenda of board meetings, had no mention of branding. In order for this to change, marketers must begin to discuss brand activities in financial language and articulate clearly its role as a core driver of shareholder value. We believe that marketers who do this, will reap the awards for their organisation and will secure a prominent seat around the board table. Likewise, board members need to realise that brand is a company’s most important intangible asset and a major crisis to a brand can cause its value and stock price to plummet. By growing a better command of brand matters, directors can add another important dimension to their service.

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