Brands on Balance Sheets?

 

So what has Brand got to do with Balance Sheets?

Well, if a brand is a belief system, representing the sustainability of a company in the mind of its stakeholders it follows that a well-managed brand leads to a well managed customer relationship and consequently a well managed business. And al these things drive corporate value.

Now, in crisis times people look for brands they trust and those having nurtured their brand and reputation have a stronger position especially in turbulent times. There’s a lot of research demonstrating this and Millward Brown Research have shown empirically that companies who continue nurture their brands outperform others in the stock market.

Companies that fail to brand-build risk losing value – these  companies have usually failed to understand  what real brand building means –  the goodwill/reputation enhancement it brings and the impact on bottom line. Unfortunately a lot of companies just pay lip-service to brand building, happy to spend when there times are good but hiding the cheque book when times get tricky. At the end of the day that might be the right thing to do as long as you’ve worked out all the metrics first rather than exercising your knee in a haphazard manner …

Key to all of this is that Brand justifies pricing – the acceptability of a price reflects whether a company is successfully delivering against its promises. And delivering correctly means you build revenue and value. A lot has been written on this and having trawled through the net I thought it might be good throwing my views in…

So what are the problems in failing to build a brand?

Misuse of Resources

When things gets tricky some companies jump to attack those ‘costs’ that they feel can be cut with little immediate business impact. But without having the right metrics in place what they are really doing is cutting blindly and making two big mistakes, Investing in something without really understanding the benefit and cutting activity without understanding the impact

This leads to more bad management – brands need continual investment to maintain their value.

Mind you….Marketing departments have to take responsibility for demonstrating their own metrics and added-value. Armed with the right data you can make a solid case – one which will differentiate ‘costs’ form ‘investments’…..

Poor Business Planning

Failing to understand the consequences of underinvestment means business plans are unrealistic. Companies can be  too quick in approving plans and then cutting the marketing drivers of those plans to ensure that original profit targets can be maintained. This shows a lack of professionalism that leads to continued bad practice and with a resultant effect on relationships, revenue streams and profit. Also it ignores someone who is reasonably important – the customer…. Leaving a void n communication and assumes that customers are fully loyal  – as if competitors do not exist, as if customers do not need the reassurance of understanding why they should choose you instead of someone else.  Again…try not talking to your partner for a while and see what happens when communication dries up 🙂

Lower Company Valuation

Failing to value the brand correctly means that the commercial value of that brand or the entire business. Just look at British Leyland with the Mini brand and how BMW nurtured it.

Undervaluing an asset can lead to poor performance because managers who work on those brands feel demotivated and without resources to improve the situation tend to go into a steady state mode. The business then becomes even more inefficient. This is so often the case when a company is in trouble that the whole business appears to spiral downwards – in truth the company is the architect of its own downfall and not outside elements.

Substantiating Brand Value

Demonstrating brand value can be easy but is often is clouded in mystique or undermined by using the wrong/exaggerated metrics -done well it makes what is seen as intangible, tangible.

The key is in what to measure & what’s relevant for a vibrant business model – just as a grocer adds value by being open longer or by delivering, winning businesses strengthen relationships.

Pricing & Brand Economics

A cup of coffee may cost around €1.50 and after subtracting all costs may yield around 10-15% profit.  Add a green logo and call the coffee Starbucks and the retail price increases to €2.00.

Price is substantiated by brand experience – simplistically the Starbucks brand value is the premium it commands. The value of the company without the brand s is unthinkable?

This implies a commitment to ensure that brand investments appropriate and consistent. It is inconceivable that carefully thought out marketing and brand investments that have generated such a strong position can be treated in the same way as administrative costs. The same is true of other strong brands and reducing brand investments for such companies can only contribute to a deterioration of how stakeholders view the brand this applies equally to other industries:

Automotive: Question: When is a Volkswagen not a Volkswagen? Answer: When it is a Skoda…

Made in the same factories by the same workforce with the same power-train

Elevating Branding To Investment Level & Reporting On The Balance Sheet

Also great way of giving Marketing a bigger seat at the table…..

As a fundamental part of planning, measured with exacting metrics, the business will generate more robust and more achievable plans if Marketing investments are treated correctly. This also brings with it an upgrade in the professionalism of the company and better results thanks to focus on ROI which means better business decisions.

Reporting Brand Value on the balance sheet the company has a twofold effect of transparency and focus.

Transparency  – of added value in overall brand reputation and business contribution.

Focus behind corporate value – management will be forced to show how they are treating a valuable asset. A strong statement to all stakeholders but particularly shareholders by reporting brands on the balance sheet and in so doing differentiate themselves from those who don’t.

There is a type of ‘disadvantage’ from having a brand on the balance sheet and that is that the increased transparency will expose poor management…..oops…..but that just means that companies who fail to show they are supporting their own brand value will be held accountable.

Cutting advertising/branding is sometimes viewed as a quick improvement in the current year’s P & L. But if this showed a future loss in the customer’s belief system and erosion in asset value and reputation then investors would start asking some hard questions rather than praising management.

Surely the additional transparency is in the best interest of stakeholders and especially employees who have a right to understand whether the company is investing in future value?

 

 



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