Understanding and driving brand strength (and why it’s more important now than ever)
Intangible assets represent nearly 60% of the value of mid-market companies. A large component of this value is often either directly attributed to, or is reflected in, the business’s brand.
A brand portrays a wide range of aspects associated with a business, distilled into a name or image. At the extreme end, one need only think of Google, Amazon or Apple to understand the potential reach and influence of a brand, and the huge success that can be leveraged from a well-managed brand.
Understanding and driving a brand can be important from:
- A commercial perspective: in driving the existing business or leveraging into a new line of product or service.
- A transaction perspective: in communicating and driving deal value.
- A financial reporting and compliance perspective: in ensuring sensible accounting and tax outcomes as part of a purchase price allocation.
Brand opportunities in the COVID environment
Now more than ever, your consumers’ relationship with your brand is crucial. Due to the COVID-19 pandemic, consumer confidence is low and people are making shrewder spending choices – but they are still spending.
There is opportunity to be found, just in new and different ways. With the ongoing efforts to ‘stay at home’ and ‘slow the spread’ of the coronavirus, brands have more of a captive audience as people watch more TV, and spend more time on their devices and social media. Many brands have had to adapt their strategy and value proposition to be sensitive and appropriate to the current environment. Those that do it well improve the relationship with their consumers and their brand perception (and arguably value).
Some have even found a way to have fun and bring levity to their audience. Editor’s note: the Netflix spoilers are particularly good – the concept seeks to curb the spread of the coronavirus pandemic by using the threat of spoilers to stop people from being tempted to socialise and encouraging them to binge on Netflix instead.
There are also those brands that have done themselves no favours.
The key challenge is to make sure your brand doesn’t appear to be opportunistic (taking advantage of a challenging situation) or out of step with the current times.
Indicators of brand strength
There are a number of factors that are associated with brand strength. Understanding them can help you drive the strength of your brand in a way that is relevant to your business and your customers. Below are some helpful questions to consider and observations involving recognisable global (and local) brands:
|Brands||Questions to consider||How to evaluate||Examples|
|Brand recognition||How well and wide is the brand known? Is it known by parties relevant to the success of the business?||Tiffany & Co and Nike are two brands that invest heavily in brand advertising and marketing to achieve a wide and deep scale of recognition.
Tiffany & Co, one of the most iconic luxury brands, earned its place in brand history by being one of the first jewellery stores to put a clear price on products and cease all haggling and negotiation (which was the norm everywhere else in the 1830s). In doing this, Tiffany insisted the products were of high quality. This value wasn’t intrinsic, at least if considering the cost of silver and a blue box. Tiffany created the value placed on a Tiffany product by putting high price tags on their items, and continuously investing in their marketing and strategy. Now, their global brand value is estimated at $5.34 billion.
Nike is widely considered the most valuable sports brand in the world. Nike doesn’t just pitch the latest shoe, they sell a lifestyle - a lifestyle many aspire to. From a compelling tagline to an iconic swoosh and emotional and heroic storytelling, the brand has enough long term value to take a risk with a strong political stance – as it did in 2018, with its infamous Colin Kaepernick advertisement. People loved it and bought more Nikes, people hated it and burned Nikes, but the Nike machine kept on marching. With this advertisement, Nike changed the rules – brands can no longer afford to remain neutral. Consumers today expect brands to do more than articulate their purpose, they expect brands to take a stand on something even if part of your target demographic doesn’t agree with you. We're seeing some brands take this stance at the moment with the global Black Lives Matter movement.
|Brand perception and association||What is it the brand known for/associated with? And are those things positive or negative in nature?||Still the most valuable fast food brand in the world, with an estimated value of $130.4 billion, McDonalds has been on a brand perception journey, from fast, fun, reliable and consistent; to unhealthy and irresponsible; to (a bit more) balanced and socially conscious. With an average of 1,670 calories in a regular McDonald’s menu meal, the brand has been under increasing pressure and has responded by introducing healthier items, calorie counts and removing trans fats and antibiotic impacted meat. McDonald's is a positive case study on reinventing the brand to remain relevant.|
|Brand loyalty and impact on the purchasing decision||Are customers loyal to the brand? Loyalty may not mean frequent purchasing in terms of weeks, months or even a few years - it’s frequency with reference to the business's purchasing cycle that's relevant. ALso, is the brand an influencer in respect of hte purchasing decision? If so, the brand is likely to be more valuable.||At face value, the Holden brand would seem strong. However, with General Motors discontinuing the brand in Australia (despite its rich history, cult-like following and soft spot in the heart for many), one must start to think from a macro perspective and also in terms of brand impact on purchasing decisions.
From a macro perspective, Holden is known mostly for large-sized, non-SUV vehicles, and for bold V8s - neither of which are growing markets.
From an impact on purchasing decision perspective, were the masses truly loyal to Holden, in a way they acted on? Or was it just a warm association that didn’t translate into action?
|Brand extension||Has the brand demonstrated an ability to extend into new markets, geographies or product areas? This is evidence of a brand that can be leveraged. Proven extension gives comfort that further extension might be achievable.||Not one to sit on their ‘world’s most valuable brand at $315.5 billion' laurels, Amazon has made a massive transformation in their business model – it’s easy to forget the days that Amazon was primarily a book seller (just over a decade ago). Now the global leader in e-commerce, Amazon is also the world’s largest artificial intelligence (AI) assistant provider and cloud computing platform, and has also recently entered the grocery game with Amazon Go.
Disney, too, has extended its business - into the streaming service horse race - a move that seems to have benefitted the brand (especially after launching Frozen 2 through its streaming service early for the benefit of parents facing COVID-19 home-isolation with bored kids.)
|Longevity||Has the brand demonstrated an ability to stand the test of time? It’s generally hard to convince the buyer of a young business that the brand is a strong driver of value.||At more than 200 years, Jim Beam is synonymous with brand longevity. The current master distiller is still the great-grandson of founder Jacob Beam and the seventh generation of the Kentucky bourbon men who’ve upheld the traditions, values and success of the brand.|
|Channel||Is the model business-to-consumer ('B2C') or business-to-business ('B2B')? |
B2C businesses tend to have greater customer reach and therefore tend to have more recognisable and valuable brands. That said, there are many B2B businesses with strong brands.
|Atlassian is a home-grown example of a B2B business with an exceptionally well recognised and strong global brand. From humble beginnings, established with a $10,000 credit card debt, Atlassian, the enterprise software developer, has grown to a market capitalisation of over USD 20 billion. Naturally, Atlassian’s software is a huge driver of its value, and a range of other assets also contribute, however its significant brand recognition, positive association and extension that Mike Cannon-Brookes has been able to generate beyond the company (but leveraging the association) is proof of the potential value a B2B brand.|
|Intentions of a buyer||What would a range of logical buyers (owners) of a business do with the brand? Would they continue with it, or would shelve it? And why?||In December, Caltex Australia announced that it would revive and rebrand to its old Ampol brand (which has been dormant since 1997) after Chevron announced its intentions to withdraw the existing licence for Caltex Australia to use the Caltex brand.
Does the Caltex brand have limited value in Australia, or does Chevron see inherent value that it would rather exploit directly? One must wonder if this perceived direct value is greater than the millions in passive royalties that Chevron pockets each year from licensing the brand to Caltex Australia.
|Product and service relevance||How relevant is the underlying product or service in the current market?|
Is it likely to remain relevant, and are the products or services on the right side of global trends?
Underlying the value of any brand, is product and service relevance. Some successful brands demonstrate extension into new products, services and geographies, often leveraging a reputation for quality or reliability.
|Kodak is infamous for purportedly inventing the digital camera in 1975, but then burying the technology. Their rationale was that it would cannibalise photographic film sales, to the detriment of their core business. Wind the clock forward to 1995, when Kodak’s patents on key components of the technology expired, enter the meteoric rise in digital cameras, and by January 2012, Kodak had filed for bankruptcy. Interestingly, most of us now carry a digital camera with us at all times, in the form of our mobile phones.
Despite being one of the most iconic brands of its time, Kodak’s story illustrates the importance of product and service relevance, or in this case, the absence of it.
Leveraging your brand value
A thorough understanding of the above factors can assist in achieving desirable commercial, transactional, financial reporting and tax outcomes.
As brands are inherently intertwined with the other assets of a business, it can be challenging to value them independently of other intangible assets (for example technology, product IP and customer contacts and relationships). Here is a complimentary tool we’ve prepared that may assist you.
If you’re interested in understanding the value of your brand or other intangible assets be it for a commercial, transactional or regulatory context, please don’t hesitate to contact us for a confidential conversation.