Now’s the time to invest in profitable, long-term, high-return and low-risk assets: brands
Tuesday 13 October 2009
In September, Cadbury rejected a $10bn (£6.6bn) bid from Kraft, claiming it understated the value of its business. What is the value of its business based on? Brands.
Marketing folk can often describe them in ethereal language, but smart business people know that brands are specific, protectable assets that create ongoing value (ie both short-term and long-term) for businesses. It is hard to think of any other asset that does the following:
* makes money for you now
* makes money for you tomorrow
* reduces the risk of not making that money
* enables you to reduce cost while you make money
* facilitates growth
* cannot be duplicated or copied by anyone, by law
* is yours to keep forever.
According to a survey by Harvard Business School and the University of South Carolina, they also provide higher than average returns on investment in those stocks that own them, and at a lower risk rate.
If you were a CEO of any business (B2B, FMCG, hi-tech, low-tech, big, medium, small or micro), wouldn’t your main thought be to build a business around the creation of value in an asset like that?
Brands promise value to your customers. By delivering that promise, you make your money. It is that simple. Customers buy brands, repeat buy them, buy new stuff from them and tell others to buy them. That is true whether it’s Geek Squad fixing computers in someone’s home or Innocent drinks making fruit smoothies. It also works the other way. If you’re Arthur Andersen not paying proper attention to the accounts of clients, or Enron skewing the energy market, you ruin your brand, you destroy your business.
So it’s ironic that a recession caused by large companies investing in worthless assets could claim as one of its victims investment in the most valuable assets businesses have. That’s because the first hit that is taken in the recession is discretionary spend, and for many people that means brand budgets. Too often I hear the words: ‘I can’t afford to spend money on my brand,
I’ve got to sell some product’. In fact, during a recession, the one thing you should not be doing is reducing any investment in your brands. Rather, a recession should give you the opportunity to think about the role brands play in your business and how to organise yourself around them so that you maximise value for your business.
Brand value is not created by advertising (though it can contribute to it), it is created over the entire consumer experience. By understanding where are the greatest points of pleasure and pain they enjoy or endure, you can work out where best to focus your innovation, product development, and marketing and media spend to secure their lifetime loyalty.
Among the winners of the recession so far have been retailer brands: Tesco, Morrisons, Co-op, Sainsbury, Lidl and Aldi. Even the John Lewis Partnership through its Essential range at Waitrose has been able to shore up its business. They have succeeded because they are able to respond quickly to their customers’ needs (almost overnight, in some cases) and through a variety of channels (including online and home delivery) and with new product offerings (Tesco moving into finance) communicated rapidly through cheaper media. These companies are all successful because they are managed by people who are committed to branding and whose obsession is long-term customer value, not short-term shareholder return. It is inconceivable that Tesco chief executive, Sir Terry Leahy, would ever risk the reputation of the company’s brand by offering customers products and services which have no value to them. And what do you know? They end up delivering great returns to the shareholders anyway.
They remind us that the successful companies create long-term business value through creating life-time customer loyalty to their brands. So now is the time to focus your investment in brand building, not the time to assume it’s a discretionary cost and can be cut.
The writer is the author of ‘Don’t Mess With The Logo’ and a founder of The Caffeine Partnership, a business consultancy dedicated to helping companies grow faster.
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