|Time to Let the Brand out The Bag.|
By David Haigh ~ CEO Brand Finance plc
Wednesday, 20th April 2005
Brands are starting to become recognised as key assets that, in today’s economy, can help drive companies forward. Brands are instrumental in the strategy and success of companies across the world, yet brands seem to be peripheral after-thoughts in the dealings of the financial centres.
Marketers have struggled to rise to the top and few CEO’s or CFO’s come from a marketing background. This boardroom bias towards finance has helped keep marketing and branding in its place. But this should not be the case; a strong brand and a good marketing function are important, key in fact. The attitude of many senior executives needs to change to reflect the growing significance of brands and to fully exploit their value and power in the equity markets.
Almost uniformly across the globe companies have tended to adopt a secretive attitude. Annual reports and other
Investor Relations mediums have reflected companies desire to reveal only bare necessities. Whilst Australian companies are fairly open in comparison to some European Markets and certainly in comparison to other Asia-Pacific markets, they still trail the US and Scandinavian regions in terms of disclosure.
The fact is that even if marketing accountability is successfully recognised internally, this accountability and disclosure is not passed on to shareholders and the investment community. But as branding and marketing take up more of the budget and become more influential on revenue investors will undoubtedly be curious. What is the brand worth and is this value incorporated into the share price? How much has the company spent on marketing/advertising and is there any comeback from that investment.
Better communication has manifold advantages. These include:
Studies conducted by Brand Finance in the UK show that 75% of City Analysts demand better brand value reporting. At the same time the amount of companies disclosing brand values on their balance sheet has decreased. Whilst the UK accounting standards are more restrictive than in Australia, the study highlights a general problem with companies, both in the UK and elsewhere. The problem; whilst brands have finally begun to receive some recognition within organisations, when it comes to merger and acquisition deals, IPO’s, or general investor relations the brand suddenly gets dropped from the picture. Whilst it would perhaps be an overstatement to say that the brand should always be central, it undoubtedly does not get the consideration it deserves.
- A higher rated share price reflecting the brand value previously unrecognised by the market
- Less opportunity for wily competitors to snap up quality brands on the cheap
- A truly accountable marketing function
- A heightened and fair reflection of the contribution marketing and branding make to the ongoing business performance
- Added credence to the marketing department (a movement toward the centre of company strategy
- Better marketing budget allocation
So what can marketing directors do?
Whilst we cannot overplay the importance of brands we certainly have underplayed their role over the years. It is time for marketing to be bold and for companies in general to embrace the advantages of better and more commercially-minded brand measurement systems; and brands’ importance and role in improved financial disclosure to shareholders.
- Ensure that the importance and role of the brand are understood by members of the board.
- Put in place marketing accountability practises such as a brand value tracking system to measure the ongoing contribution of the brand in a commercial sense (no doubt, a Board would respond more positively to a brand measure in $$$ as opposed to a % of brand awareness/favourability/satisfaction….etc)
- Work more closely with the financial director (or department) to ensure that returns from brand investments are understood and explain the dynamics behind marketing
- Better internal communications to explain the importance of the brand to the company and the ongoing financial contribution it makes to the business
- Put in place, or persuade the board to agree to put in place, better external brand value reporting. This may be in the format of more explanatory notes in the annual report detailing items such as market share, marketing expenditure and brand value or even a separate marketing report. Also analysts presentations and similar IR opportunities should be used to discuss the key driver of business, both marketing and branding and indeed many other areas. These will give investors a real understanding of the dynamics of the company and the market and counter-play short-term fluctuations.
Australia has the potential to adopt best practise in advance of many other capital markets. I hope that we take that opportunity. The increase in new economy stocks, with few tangible assets and a strong reliance on marketing, have been a catalyst for change. The fact is that many traditional benchmarks of corporate success are losing relevance and new performance measures are taking their place. Why not let marketing be one of these many new measures?
Brands will be major drivers of corporate value in the 21st century. Smart investors and enlightened business leaders have recognised this. Marketers are increasingly using brand valuation models to facilitate marketing planning. They should go one step further. Investors need and want greater disclosure of brand values and marketing performance. Marketers should play a lead role in ensuring that such information is adequately communicated to investors, rather than waiting for statutory disclosure requirements to catch up with reality.
David Haigh BA, ACA, FCIM, MAE
CHIEF EXECUTIVE OFFICER, Brand Finance plc
David qualified as a Chartered Accountant with Price Waterhouse in London. He worked in international financial management then moved into the marketing services sector, firstly as Financial Director of The Creative Business and then as Financial Director of WCRS & Partners.
He left to set up a financial marketing consultancy, which was later acquired by Publicis, the pan European marketing services group, where he worked as a director for five years. David moved to Interbrand as Director of Brand Valuation in its London-based global brand valuation practice, leaving in 1996 to launch Brand Finance.
David is a fellow of the UK Chartered Institute of Marketing. He is author of ‘Brand Valuation’ (FT - Retail and Consumer Publishing, 1998), ‘Brand Valuation - a review of current practice’ (IPA, 1996), ‘Strategic Control of Marketing Finance’ (FT/Pitman Publishing 1994).
David’s most recent publication was co-authored with Gilson Nunes (Managing Director, Brand Finance do Brasil) and is titled ‘Marca Valor do Intangível’ (Editora Atlas, August 2003). This is David’s first publication in Portuguese and has been released in both Brazil and Portugal.
Brand Finance plc
Brand Finance is a specialist consultancy dedicated to the better understanding of marketing finances. It is entirely independent and offers a highly professional approach to marketing accountability and brand valuation. Brand Finance now has a presence in eight countries, including the UK, USA, Spain, Brazil, Australia and Hong Kong.