In the business world, many changes are happening simultaneously. One of the most important is that branding is no longer considered as an expense and it begins to be valued as an investment. This is one of the most significant changes that will have the greatest impact on the business world in the coming years.
The intangible is increasingly valuable.
Towards the end of the 20th century, up to 95% of the median value of a company consisted of tangible assets. Today, 75% of the average value of that corporation is intangible, according to a report by Thomson Reuters and Interbrand.
And in a recent survey published by the World Economic Forum and Fleishman-Hillard, more than 60% of CEOs said that corporate brand and reputation accounted for more than 40% of their company’s market capitalization.
In other words, the most valuable asset of a company is its good name, its brand and its reputation.
The value of a brand
The value of a company’s brand has several elements, of which there are four that are basic: perceptions, expectations, business relationships and intellectual property assets. Quality in each of those areas increases the financial value to the organization and you may charge more for the same product than your competitors.
Companies with strong brands can also attract talent and retain employees better. Another recent study suggests that 80% of employees between the ages of 18 and 30 (millennials) will leave a company if they believe it has a weak brand.
Intangibles to power
The value of a company’s intangible assets, such as brand, reputation, intellectual knowledge, copyright, consumer data are not always easy to pin down.
Globally, the value of these assets has exploded since the beginning of the Digital Age, and the growth of this digital economy has profoundly changed the way companies are valued. Value is increasingly derived from software, digital platforms, and other intangible investments rather than physical assets.
The true wealth of a company will no longer be in physical assets and will be found in the creative minds of its people and in their ability to innovate.
It is not an expense, it is an investment.
In the BrandZ 2020 ranking prepared by Kantar, we found that the 100 most valuable brands in the world have reached a value equivalent to the annual GDP of Japan in 2020. The analysis shows how the 100 most valuable brands have proven to be more resilient and less volatile in the current crisis than they were during the global economic crisis of 2008-2009. In fact, they have seen their value increase by 277,000 million dollars, 5.9% compared to 2019.
– Investment in marketing and brand building has been critical to post-COVID-19 business recovery
- Innovation and creativity are key drivers of growth.
- The significant improvement in brand equity now compared to 10 years ago is because companies understand the importance of investing in brand building and are stronger and more resilient as a result.
- While the impact of COVID-19 has impacted all businesses, regardless of size or geography, consistent investment in marketing can and will help you weather a crisis.
Every year Brand Finance analyzes the fluctuating value of intangible assets on the global stock markets. And one of the big changes that I mentioned at the beginning of the post is the phenomenon of “undisclosed intangibles” that has emerged, according to Brand Finance, because accounting standards do not recognize intangible assets unless there has been a transaction to support the securities. of intangible assets on the balance sheet.
Brands are not physical items, but they have real value to businesses. Thinking of a brand as an asset is a powerful new dimension.
Surely the majority of believers in the strategic role of the brand have faced this reality: Have you had problems convincing people in your organization to invest in the brand? One way to get people excited about branding is to explain that a brand is an asset; it has value and generates future benefits. Rethinking a brand as an asset is one of the most influential transformations in today’s business world.
Is a brand an intangible asset?
The answer to that question is crucial because it will determine how companies should spend their money.
If a brand is an asset, then it would be worth investing in it because it would be worth it in the medium and long term. Like an asset such as a machine, it can be expensive at first but generate money over time. But unlike a machine, it depreciates over time, while a good brand has more and more value.
Like any asset, brands require:
Brands are best used when they serve the strategic vision of the company.
Brands have value and can be bought and sold.
Investments in the short, medium and long term and will pay dividends over time.
In the analysis of the brand value rankings published by the consulting firms Kantar, Brand Finance, Interbrand and Forbes each year, it shows that more than 50% comes from 5 of the 24 industrial sectors (as defined by GICS, Global Industry Classification Standard – the Global Industry Classification Standard-). Measured by the number of brands, these five sectors are Technology / Software, Automotive, Financial Services, Luxury, and Fast-Moving Consumer Goods
According to studies, the social capital of brands generally represents 20-30% of the total value of companies in these industries.
Brands are assets.
The strategic benefit of thinking of brands as assets is essential to any growth, expansion, development or scalability plan.
Investing in a brand creates value.
There is a difference between “brand assets” and “brand as asset”
Intangible assets are becoming increasingly important.
Intangible assets represent a larger share of business value than three decades ago. In 1990 the three largest sectors in the S&P 500 were Industrial, Discretionary Consumption, and Energy, three industries that rely heavily on physical assets. Currently, the three largest sectors in the S&P 500 are Technology, Finance, and Healthcare, all of which rely primarily on intellectual property.
An analysis of the 13,000 largest publicly traded companies in the world shows that physical assets accounted for only 36% of their value in 2017.
Within industries that have most of their business value represented by intangible assets, the first thing marketers need to consider is how much of this intangible value is represented by brands compared to other forms of intangible assets.
There are three main forms of intangible assets: intellectual property, contracts, and brands. Intellectual property assets (such as patents) represent a significant proportion of the value of technology and healthcare companies; while contracts (such as drilling rights, supply contracts, landing rights) are the dominant form of intangible asset in industries such as Energy and Transportation; while brands (in the form of copyrights and trademarks) are the intangible assets that matter most in consumer-oriented industries such as media, food and beverage, and consumer durables / staples.
The most important asset and probably the only asset of your company that increases in value over time: the brand.
The statement that “our brand is our most important asset” is probably correct for publicly traded companies whose brands are listed by Interbrand, Forbes, Kantar and Brand Finance, hoping that these new paradigm shifts will extend this reality to most companies, sectors and industries.
If you think investing in good branding is expensive, you should see what bad branding actually costs.