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What is Brand Valuation? How to derive Branding ROI

 

Are you a business leader who often perceives that establishment of a strong brand and consideration of brand strategies in the long-run, is a dispensable luxury?

Then, you are one of those CXO level leaders who believe initiatives for tactical marketing alone are sufficient and the return on branding does not interest you. Here is our cup of research through multiple sources on Brand Building and how it results in positive return through Intangible Asset creation in the Balance Sheet of the companies.

ROI-of-Branding-and-Why-should-you-hire-a-Brand-Building-Agency

Marketing vs branding is often a hot topic of debate. While marketing may seem to yield results in the short-run, on the other hand investing in branding Strategy enables companies to achieve relatively higher Average Profitable growth in the longer run. Its truly said, “Marketing takes you from 1 to 100 and branding takes you from 100 – 1000. The multiplicity of the benefit with respect to time is inevitable”

How-to-derive-Branding-ROI

Branding is one of the most important business tool that helps drive commercial value. Building a strong brand helps your products to stand out from your competitors’. The customers will choose your products more often, even at a little higher value, and at a lower cost of acquisition.

Cult-like customer loyalty, isn’t built in a day. It takes strong and consistent branding. It helps the brand yield greater revenue and profit margins more efficiently, year after year.

Moreover, branding helps increase employee retention. It helps attract new employees and keep existing ones motivated. This may create differentiation and help build company’s internal loyalties.

Studies have shown that whether your brand is B2B or B2C, branding’s ROI can be benefited from, again and again. This can also be inferred from the following compelling points.

Brand Value through Numbers

Based on Ocean Tomo’s 2017 study, a majority of S&P 500’s value transformed from tangible assets to intangible assets. Intangible assets also comprises of the brand value other than intellectual property rights like copyrights, patents and trademarks.

As can seen seen in the graph below, there was a jump of 67% in intangible assets of the value of S&P500, from the year 1975 to the year 2015. As per a study, “Comparing the 39 companies appearing on both the S&P 500 and Interbrand’s Best Global Brands 2016 suggests brand value may represent roughly one quarter or more of average Intangible Asset Market Value (IAMV).”

Brand-Value-through-Numbers

It now sounds convenient to define the “brand value”. In simple words, the way stakeholders perceive the company can be coined as company’s brand. Stakeholders here indicates the company customer, employee, key management or even competition.

brand-value-and-its-roi

Strong Brands and Market Performance

Now that we know the role of branding in the marketplace, it is equally important to understand how to capitalise the same by investing in branding. It’s rate of interest can be seen when we look at the market indexes of some of the strongest brands. We find that they tend to outperform consistently in each of the indices.

Strong-Brands-and-Market-Performance

Strongest brands of the world are measured based on 10 factors as follows:

1. Clarity
2. Engagement
3. Commitment
4. Presence
5. Governance
6. Consistency
7. Responsiveness
8. Differentiation
9. Relevance
10. Authenticity

Kantar Millward Brown, international market research firm, defines strong brands in terms of:

1. Meaningful: these brands meet consumer’s expectations and necessities while appealing more and generating greater love amongst them.

2. Different: their uniqueness enables them to set positive trends and gives first mover advantage in the benefit of the consumers.

3. Salient: they tend to stand out and pop up in the minds of the consumers as the brand of choice for specific needs.

roi-brandz-valuation

To calculate the isolated strength value of the brand in the consumers’ minds, a valuation tool named Milward Brown’s BrandZ™ is used. As shown below, BrandZ Strong & Innovative Brands Top 20 Portfolio value rose to 226 percent between the years 2006 and 2018, while there was just a 50% increase of MSCI World Index.

Prophet, the global consultancy, released an index of World’s Most Relevant Brands. It classifies brands as reliable, on the basis of the following:

1. Customer-Obsessed: the brands that create, invest and bring to market, based on meeting the customers’ needs.

2. Ruthlessly Pragmatic: consistent experiences lie at the heart of these brands. They ensure product availability whenever and wherever the customers need them, making their lives easier.

3. Distinctively Inspired: these brands fulfil a larger purpose, establish an emotional connection and earn consumers’ trust.

4. Pervasively Innovative: these brands bridge gap between consumers’ unmet needs and the products through innovation, by engaging with them in creative ways and pushing the status quo.

It is a known fact that world’s most relevant brands’ revenue growth outperformed S&P 500 average by 28%. It is evident that the most relevant and the strongest brands will outperform all the others who do not invest in or prioritise investment in branding as part of business goals.

Strong Brands and Premium Pricing

You are doing good business when your brand has the power of price determination, without losing customers to a competitor. Pricing power plays a very important role in evaluating any business and it is one of the most crucial components of rate of return of branding. Hence, strong brand are often the price makers in an industry.

Strong-Brands-and-Premium-Pricing

Millward Brown’s study analysed consumer habits and found that on an average, strong brands can capture, thrice the weak brands’ sales volume. This is the power that the strong brands exercise over the market. The power here refers to the volume share prediction of a brand, based on predisposition of consumer to prefer one brand over the others. The study also concluded that these brands command a 13% price premium over the other brands.

Millward Brown believes that these conclusions are “all the more remarkable when you consider that consumers do not set the price for their purchases; it is the brand owners and retailers that do that.” Based on his definitions of a strong brand as different, meaningful and salient; we can conclude that a consumer pays the price that is reflective of how different, meaningful and salient a brand is to them.

Branding’s Long-run Value

Price premium commanded by the strong brands isn’t a result of short-run marketing strategies. Rate of interest of branding is often not appreciated because people access its value over a short-run, just like the marketing driven sales activation. It takes a longer period to accrue and access the brand value. The evaluation of brand building activities over six months show that they direct higher sales growth compared to short-run marketing strategies.

Branding's-Long-run-Value

This can also be graphically observed below:

Marketing Activation efforts generate larger sales responses in the short-run of less than 6 months, compared to branding initiatives that are incremental. Marketing activations are easily measured and attributed because they are direct, immediate and significant; contrary to the branding activations. Sales spikes decay quickly once the activation is completed, and do not generate over-the-time momentum. They often recede to the baseline levels. In the short-run, marketing initiatives results outweigh branding’s, which are harder to measure. Establishing a link between sales and branding then becomes difficult. Branding awareness is built over a period of time. Unlike marketing initiatives, return on investment of branding has a cumulative effect. Long-run results and sales growth are dominated by brand-building activities, rather than repetitive marketing activations.

branding-vs-marketing

CEOs are often attracted by the immediate results of marketing activation and hence they overlook the value of the branding in the long-run. This mindset is often referred to short-termism, which dangerously leads to under-investment in efficient activations like branding. It is important for any brand to have a balanced approach towards both the initiatives. “Media in Focus”, is a comprehensive report that shows, to achieve optimal effectiveness, a company must invest about 60 percent of its marketing budget to brand building, and around 40% must be directed towards marketing activations.

branding-on-sales

It is now the role of CMOs to divert much-needed attention towards ROI from branding. This can be easily opposed by the default focus of CFOs and CEOs on marketing activations. CMO must be able to put a strong case in favour of brand building and its long-run benefits compared to marketing strategies with its short-run effects.

60-40-split-roi

Sustaining a Valuable Brand

Branding shapes how people perceive the brand and that further instils their trust in it. Edelman Trust Barometer respondents believe that one of the main tasks of a CEO is to ensure that his/her company is trusted. Hence, branding becomes indispensable at the end of a CEO.

Sustaining-a-Valuable-Brand

When branding is prioritised, behaviour of consumer decision making is deeply analysed. Implementing calculated strategies for branding to influence and attract consumer choices is equally important, then understanding your competitive advantage in the market over other competitors.

In order to increase the investment in branding, a business owner has the following options available:

1. Positively influencing the existing brand strength through price premium.

3. Shifting focus on unmet needs to capture the untapped market potential and hence repositioning their brand.

4. Interrupting the conventional brand category and diversifying the business model.

According to the Psychology of Brand Personality, the consumers perceive same personality traits in people as well as in brands. A good branding strategy capitalises on the same and tries to establish meaningful, strong and lasting relationship with the consumers. The emotional experience of stakeholders, at each time that they come in contact with the company, can then be defined.

It then helps build brand loyalty, positively shifts preferences and transforms consumer interactions from products to experiences.

It can be inferred that branding is one of the most crucial investments decisions that a company has to make. When people love a brand and relate to it, they are willing to pay more and go long extent, just to stay loyal to the brand. They gain from the emotional experience and not just the product. This can be observed in real life through the long miles people are willing to go and hours they are willing to spend and money they are willing to spend, to stand in queues at any Apple iPhone launch. This is reflective of their associated brand loyalty, other than just using the product.

Conclusion

If a company is looking for stable and long run impact and ROI of its product/services in the minds of people, strategic investment in the brand will enable it to yield the results. Strong, iconic companies like Apple, Starbucks and IBM are living examples of the impact of a good branding strategy. They utilise emotions and needs of the people to establish brand loyalty and further gain from it. In present scenario, brand owners in gulf areas are identifying branding as an indispensable part of any business to function and flourish in the long-run. Many established brands of UAE are focussing on strengthening the backbone of the existing companies through various branding solutions.

As highly said by Jezz Bezos, “Your brand is what other people say about you when you’re not in the room” its time that companies focus on Brand activations and understand brand value as a part of their business value proposition.The net present value of this investment must be projected and taken into consideration for any business decisions.

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