IPA shows finance teams may finally see the power of brand

Zaporozhye, Ukraine - May 26, 2015: Photo of a logotype collection of well-known world brand's printed on paper. Include Coca-Cola, YouTube, Pepsi, Canon, McDonald's, Google, Facebook, Twitter, Apple and more others logo.

A company’s brand is so much more than just a visual element, it reflects how people perceive and think about your business.

Brand is like the oil paint that colours the canvas of your firm’s values, promises and experiences. It is a deeply important asset that helps build customer loyalty, sets you apart from competitors and allows you to set a premium price on your products (always a good thing).

That’s why a strong brand is one of the more potent intangible assets. Brand can achieve such great cut-through that customers (and potential customers) can be guaranteed to spot your ad from 1000 yards no matter how much noise may be assaulting their senses.

The red of Coca-Cola; the bitten apple of the iPhone; the swoosh of Nike; even a giant “Golden Arches” rising above the freeway triggering saliva in the mouths of passers-by like Pavlov’s dogs – these well-known brands achieve are far bigger than whatever they are selling.

On the other hand, companies with weak brands struggle to get a spot on the podium and there’s a long line of companies waiting for their turn to speak. But a company with a strong brand is like a speaker who builds their own podium, on top of a hill they created, inside a town square that they own. With a position like that, customers will turn their heads every time your company speaks.

New survey data from the Institute of Practitioners in Advertising (IPA) and Brand Finance found that brand strength outranked everything in terms of importance.

“Strength of brand/marketing” was most frequently cited by the 200 financial analysts surveyed (at 79%) when asked what they look for when valuing a business. As mentioned above, brand was so important that it came in ahead of leadership quality (76%), technological innovation (72%) and even reported profit (71%).

IPA director of effectiveness Laurence Green said the survey proves investors are searching for businesses that go the extra mile to create a clever brand that gains cut-through.

Furthermore, about eight in 10 of the analysts surveyed say they check on advertising spend as part of their assessment of the companies they report on. The more an analyst understood advertising, the more likely they were to consider it as an investment (37%) rather than a cost (24%).

Interestingly, 67% of the analysts surveyed wanted to see changes to how intangible assets as a whole are reported upon and accounted for.

It’s often tough for marketing teams to justify their budgets at the best of times. CEOs seem to have a default assumption that marketing is always a cost. It is difficult for even experienced leaders to put a value on a company’s intangible assets, so their reflex is often to lump them all into a big box called “goodwill” or simply ignore them entirely.

But with data like this, marketing teams now have more firepower to persuade sceptical leaders about the utility of their efforts. It proves that the people with the money – the ones who matter the most for the growth of a business – are thinking about how intangible assets like brand will impact a company’s valuation.

Financial analysts are cutting through the noise to confidently announce that investing in brand is not a waste of money. Indeed, it should be seen as a capital expenditure and with a positive ROI.

Of course, there are plenty of caveats here.

For example, unfocused marketing spend or doubling down on risky brand ideas due to lazy thinking won’t get a free pass. Financial analysts who understand the criticality of intangible assets will almost certainly know what a good brand strategy looks like – and know when to call out wasteful spending.

The IPA research supports EverEdge’s advice that much of a company’s long-term equity derives from the strength of its brand.

This is because, sooner or later, all product functionality is superseded by innovation. Someone will always come up with a better mouse trap as competitors catch up, triggering a game of leapfrog where you’re ahead of them for a while and then they move ahead of you. The only thing that can save you from this game of “functionality leapfrog” is a strong brand.

It is a positive sign that financial analysts are confidently championing brand as a critical intangible asset. For those who were (righteously) convinced that their efforts to build brand were helping the company, they can now rally support from the people holding all the money.

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