Welcome to the third article in our “Why Branding Matters” series.

In the first two articles, we explored what branding is and why it matters and what positioning power can mean to your organization. In this article, we discuss how branding can add real value to your organization.

What is brand?

There are many definitions of a ‘brand.’ But as I mentioned in earlier article, our definition of the word is “an individual’s experiential perception of every aspect of an entity, a product, a service, or a person, evoking an emotional response.” Regardless of which definition you prefer, your brand is essentially a promise to your clients or customers to meet certain expectations that have been established over a significant period of time. In order to determine how much value a brand adds to an organization, however, it’s important to decide on what you’re going to measure. More on that later.

When we think of companies such as Honda, Coca-Cola, and Microsoft, we immediately think of our experiences with those companies and what we’ve heard about them. As a result, they have a certain ‘brand value’ in our own minds. But brands don’t have to be well known or as large as Coca-Cola to be valuable. Your own organization’s brand has value, too, regardless of its size. If strategically planned, executed, and nurtured, your brand will add value to your organization as well.
The question is, how important is that value to your company, and how much effort and resources are you willing to commit in order to maintain or increase it? Most likely, your answer will depend on how much of a financial return you can expect—and fortunately, there are effective ways to estimate the number.

Especially during these tough economic times, marketers are increasingly being asked about the return on investment prior to embarking on and maintaining a branding campaign. This is no small task; it’s hard enough to determine the exact financial value of an organization, let alone the percentage of that value that is attributable to its brand alone. In order to prove the importance of branding and to justify marketing dollars being spent on it, it helps to understand how a brand adds value.

What the Research Indicates

Recently, Interbrand and BrandZ conducted two studies that compared shareholder return for the top 100 global brands against that of the top 500 companies on the New York Stock Exchange. Their brand valuation studies indicate that the top brands consistently outperform the rest of the market by considerable margins. Significantly, these successes have been demonstrated during both economic booms and downturns alike.

According to another study by Interbrand in association with JP Morgan, on average, brands account for more than one-third of shareholder value.

Furthermore, in a study entitled ‘Brand Matters,’ researchers at the University of South Carolina concluded that an investment in the top brands between 1994 and 2000 would have returned over 450%—i.e., more than 40% higher than the returns offered by the general market.

There can be little doubt that an organization’s brand is valuable, but what are the primary factors that actually determine its value? While there are several methods and models for determining brand value, perhaps the most widely accepted is Interbrand’s brand valuation model. In order to determine an organization’s ‘brand index,’ Interbrand starts with the forecast profit and deducts a capital charge in order to determine the economic profit (the difference between a company’s total revenue and its opportunity costs.). They then determine the brand’s earnings by using the brand index, which is based primarily on the following categories and relative weights:

1. Market (10%) – Assessing market stability, growth trends, and the strength of barriers to entry
2. Stability (15%) – Long-established brands that continually attract customer loyalty
3. Leadership (25%) – Brands that lead the sectors in which they compete
4. Trend (10%) – An indication of where the brand is moving
5. Support (10%) – The support a company gives to its brand
6. Diversification (25%) – Strength of the brand internationally and across multiple product/service lines
7. Protection (5%) – The company’s ability to protect its brand

This approach and brand valuation model is questioned by some, yet it does take all aspects of branding into account. By using the economic profit figure prior to determining the brand index, all additional costs and marketing expenditures have been accounted for.

Some Final Thoughts

When you think about the factors that make up the brand index listed above, you may recognize that a strategic, comprehensive, and consistent branding campaign can positively influence each of the factors.

As I’ve discussed in this article, while there may be some variations in the approach to estimating a brand’s value, there is little doubt that having a strong brand does increase a company’s market value. And, although we haven’t explored the point here, it almost goes without saying that a strong brand also helps enormously in the sales and marketing process, making it far easier to retain existing customers and attract new ones—another way it creates value.

Your organization’s brand is valuable and worth building, nurturing, and maintaining. Doing so is an ongoing investment—not a one-time expense. So the question remains: have you devoted the time and resources necessary to invest in your organization’s brand? If you’re ready to get more value from your organization’s brand, contact us today.