Brand value is not a new concept; however, few companies seem to grasp its significance. On a basic level, brands are a promise to customers on what to expect from a product or service. They take on a perception as businesses invest huge amounts of money on brands to appeal to consumer emotions to foster loyalty and boost sales.
For this reason, many marketing budgets have exeeded capital budgets world over. However, the Covid-19 pandemic threatens to change that dynamic as financial constraints would severely restrict marketing budgets.
Brand Finance, a UK-based consultancy that specialises in brand valuation, evaluates approximately 5000 of the world’s biggest brands and publishes the Brand Finance Most Valuable Global 500 list annually. In its 2020 report, Brand Finance commented that nearly half the global companies on the list could lose brand value to the pandemic. The Sri Lanka office, which has published the Brand Finance Sri Lanka Most Valuable 100 list for the past 17 years, has found that total brand value declined by 4% pre pandemic and is expected to decline by a further 10% post pandemic. Many companies have differed spending plans on brand advertising and promotions.
The current challenge is to figure out exactly where and how investments should be made according to Ruchi Gunewardene and Aliakber Alihussain. Gunewardene is the Managing Director of Brand Finance Lanka while Alihussain is Country Manager.
“It’s proven that stronger the brand the more resilient it is to shocks and will help a business outperform competitors,” Gunewardene says. Stronger bands also demonstrate an ability to sustain higher revenues over a longer period, unlike a weaker brand. “Our clients increasingly want to understand how to create the most amount of value through minimizing their marketing investments which is critically important during these difficult times”.
Excerpts of the interview are as follows:
Tell us about Brand Finance and why brand value matters now more than any other time?
Gunewardene: Brand Finance is a specialist consultancy dedicated to better understanding of marketing finance. For many businesses, marketing and finance are separate functions but our goal is to bridge the two disciplines. Marketing is too often limited to brand promotions and advertising, while finance departments focus on controlling these allocations and managing costs.
The two functions conflict often, and it is a perennial one at that. But it should not be that way. Brand Finance is trying to integrate the two where marketing is intricately linked with financial outcomes. This has lasting implications on newer strategies which are too often overlooked by many businesses. By valuing brands, we bring marketing and finance teams to a single platform where they can speak a common language using a common matrix or KPIs.
We essentially help decision-makers bridge the gap between marketing and finance by looking at relevant brand and marketing metrics that drive revenue and then linking those with tangible financial outcomes. Traditionally, finance is well represented across boardrooms, but not so for marketing. This is unfortunate because critical marketing matrices are absent in the decision-making process. This will hinder businesses from leveraging a valuable asset and realizing its true potential. A brand can have a significant value impact, and our role at Brand Finance is to help organisations unlock that potential.
Alihussain: We take pride in our Brand Finance team who are highly skilled in analytics, research, marketing, and valuations. Most of them started their careers with basic qualifications like ACCA and CIMA.
We provide independent insights to transform brands, which is a subjective and intangible concept, into a tangible asset viewed with an objective lens. Our valuations use real-time data adopting a globally accepted methodology like the Royalty Relief which is compliant with industry best practices and standards for brand valuations, as set out in ISO 10668 and ISO 20671. This means that we can always justify and explain our valuations for brands as if they were any other physical asset.
We have the backing of Brand Finance, London which also operates as an accredited chartered accountancy firm for students in the UK. Brand Finance is the first brand valuation consultancy to join the International Valuation Standards Council.
We also carry out brand audits that provide a systematic and independent examination of a brand’s performance with recommendations for improving internal processes, compliance with trademark and intellectual property protections, visual identity, licensing, customer experience, marketing management and market research. This leads to the creation of KPIs to grow a company’s brand value over time.
Brand Finance has a database of brand KPIs from 30 countries which enables us to benchmark performance measures appropriately and effectively. We track brands across many consumer categories and provide bespoke market insights for those that want to dig deeper. We track multiple brands overtime against competitors, and also compare performance across different markets and segments. We look at alternate market dynamics to see what options give us the most favourable customer behaviour and financial results.
How can Brand Finance help companies discover value in their brands?
Gunewardene: There are two main components that we look at which include marketing and financial indicators. We first assess the strength of a brand in the market in which it operates and assess its level of consumer empathy or engagement. On the financial side we look at its ability to generate revenue with other relevant financial indicators. We also compare them with competitor brands.
The stronger the brands, the better it is at commanding a market presence and realizing sales revenue than its competitors. Stronger bands also demonstrate an ability to sustain higher revenues over a longer period, unlike a weaker brand. We can assess the future sales value that a brand can generate for itself and here’s when things become very exciting because now marketing and finance teams can identify all the levers they need to pull for better consumer equity and financial results.
Alihussain: One important service we provide at Brand Finance is helping clients understand what those levers are so they can strengthen their brand value today with the necessary investments in the right areas. For instance, a company can invest heavily in advertising and promotions to improve their brand presence, but if the brand is not differentiated enough then the financial results will be significantly lower.
We know this through benchmarking and comparing one brand against another. A brand’s perception is critical to its existence. But the whole purpose of a brand is to make money which is why customer experiences matter but this is often overlooked when companies invest in brand building.
Brand Finance can help businesses avoid these pitfalls because we take a very analytical view. This is the value we bring to decision making in boardrooms. After valuing a brand, we can propose several measures to grow brand value and clients that have implemented these have seen their brand valuations increase by over 20%. We canforecast that value uplift, with our extensive research and our solid methodology. Businesses can make better brand strategy decisions early.
Many companies are differing or reducing brand-related expenses like advertising and promotions due to the economic slump. So why should companies invest in their brands now or carry out a brand valuation?
Gunewardene: Whilst it is prudent to reduce brand-related investments during these uncertain times, the challenge is to view the brand as an asset and redeploy the limited investments in areas where most value can be created. Businesses cannot build brand strength with a singular focus of tightening the processes and systems of brand management itself.
It could deploy investments to building the brand from the inside – which means through employees who become proponents of the brand. Such initiatives will help director boards make dynamic marketing decisions in these uncertain times whilst ensuring sustainable returns to shareholders. This is why multinationals take brand value seriously, they need to be able to manage their brands effectively, be consistent with their delivery and communicate with a singular voice anywhere in the world. Competition at a global scale is tough, so they use strong systems and processes to build strong brands.
Alihussain: In Sri Lanka brand value has gained traction over the years. Brand Finance has been in Sri Lanka for nearly two decades and during that time several companies have adopted brand value as a key performance measure where finance and marketing teams are answerable to the board on how their brands perform.
While multinationals and large local companies have embraced the concept of brand value, many smaller firms have not, unfortunately, but should consider doing so.