Changing the Brand Conversation
Ruchi Gunewardene elaborates on the impact of brand valuations on Sri Lankan businesses
A brand is a financial asset that adds value to a business by generating sales, attracting talent, and building partnerships with suppliers, the media and other stakeholders. It has been known for decades that the most talented people want to work for companies that are associated with prestigious and reputed products, and solid corporate names.
Moreover, it is also known that suppliers provide such companies better terms to be associated with them and banks would also lend at preferential rates.
However, financial accounting could not measure such impacts of the brand until late in the 20th century.
Attributing a value to a brand was an unknown concept in Sri Lanka until Brand Finance Lanka introduced it in 2004 by publishing Sri Lanka’s first most valuable brands listing some 18 years ago in collaboration with LMD.
Since then, brand valuation has come a long way. Many brands have benefitted through projects involving this concept for the purposes of stock market listings, attracting investments, mergers and acquisitions, strategy development, scenario analysis, performance tracking, cost optimisation and marketing budget allocation.
There is increasing sophistication in the use of brand valuation as CMOs can now measure, model and improve the value of their brands through a comprehensive and holistic dashboard, which is called the Brand Strength Index (BSI).
The value of a brand is a working model for a CMO to determine its worth in relation to the investments that his or her company intends to make along with where and how they are made.
Meanwhile, the BSI is a comprehensive dashboard, tracking investments that are made in the brand. It measures the investment made and efficiency of how that translates into perceptions (equity) across stakeholders, which in turn is expected to impact performance as measured through increased margins, and revenue and market share growth.
This direct relationship between the BSI and creating value now enables CMOs to predict the value of their brands through a flexing of the index. Every increase in the BSI will raise brand value by an amount that can be proportionately predicted.
Informed by this powerful new tool, marketing is moving into a sphere of developing a more precise and data driven approach, to help CMOs measure and model the impact of their initiatives over time.
In certain sectors, there is sufficient data to even benchmark brand value performance against competitors, providing an additional tool for analysis and determining the optimum strategies to deploy.
In this way, brands are being managed towards not only top line revenue growth but bottom line performance across many businesses.
A major benefit of this is the ongoing need to advocate for investment in brands. Especially during times of economic downturn, this data driven approach is a powerful way to convince the main decision makers.
For many years, CMOs knew intuitively that a brand is more than merely a marketing tool; and they have struggled to make their case to boards on the need to invest or how effective their strategies have been.
Using conventional research data such as awareness, consideration and net promoter scores (NPS) among others does not sit well at the most senior decision making level. Sceptical finance teams, unconvinced by what they perceive as marketing jargon, may fail to agree on necessary investments.
Whatever marketing spend there is can end up poorly directed as marketers are left to operate with insufficient financial guidance or accountability.
The conversation needs to change as financial justification is required for action and evidence to show that investments in brand results in an increase in the bottom line with justifiable returns.
This is where brand valuation has stepped in as more marketing teams are able to establish a dialogue with boards and other departments. By bridging the gap between marketing and finance, there is greater accountability on the brand as a value driver for business.