Branding Drives Shareholder Value
- Mar 24, 2014
The primary objective of boardrooms is to build and sustain shareholder value, and deliver competitive returns to shareholders. One of the most effective ways to achieve this is to build brands with strong brand equity.
Brand equity is the reputational asset that any successful business builds in the minds of customers and other stakeholders. Strong brand equity is also one of the main reasons why the market capitalization of a company often exceeds its book value. The strength of the brand equity can therefore be an indication of future financial performance.
Tangible vs. Intangible
Many Asian companies traditionally focus on asset-intensive industries. But it has been demonstrated that the most profitable Asian companies focus on intangibles such as human capital, exploiting network effects, and creating synergies based on brands or reputation, rather than investing in tangible assets.
Intangible assets like brands play a significant role in value creation and can become an important driver of shareholder value for many more Asian companies than today. On the New York Stock Exchange and NASDAQ, for example, intangible assets are known to account for 50–75 percent of the market capitalization of the listed companies, where the majority is accounted for by their brands.
The market capitalization of corporations with strong brands demonstrates clearly that the market is putting a premium on them.
A brand-driven organization
The modern brand-driven organization is characterized by three distinct characteristics which set it apart from less brand-focused organizations:
1. The right boardroom mindset toward and beliefs about branding
2. The right skill sets to build and manage brands
3. The right allocation of organizational and financial resources to achieve the various business objectives and build sustainable brand equity
Companies must ensure that everyone in the company is properly aligned with the brand values with the right mindset and belief. The entire company and its multiple and cross-functional actions and activities should be channeled towards this goal.
Internally, corporate management should take a more active role in the cross-functional orientation of marketing in the Asian organization. Externally, Asian business leaders can benefit tremendously by representing and leading their brands by example. They can help to build their brand portfolios by appearing more outside the boardroom, and acting as the primary spokesperson of the brand strategy and vision, internally and externally. This can add tremendously to the success of the brand and also be cost-effective in many instances.
Evolve the marketing function
It is important to note that the marketing function has come under increasing pressure to demonstrate financial results. Boardrooms must recognize this development and act accordingly. The first change is related to the role of marketing. As marketing is increasingly taking place along the entire value chain, marketing is not the responsibility of the marketing function alone. Instead, everyone in the organization is involved.
This requires a more cross-functional orientation of marketing, with a solid understanding of all the elements in the value chain including skills within engineering, purchasing, manufacturing, logistics, finance and accounting. This might require an upgrade of skill sets and ongoing training of the marketing personnel.
The second change required is related to the outcome of marketing. For the marketing function to become an integrated part of the boardroom agenda, the key issue for the future is to focus on demonstrating the financial consequences of marketing expenditures.
Finally the boardroom should recognize the critical importance of resource management in building strong brands. Therefore, the last cornerstone of successful Asian branding refers to organizational and financial resources, their allocation and management. The more everyone throughout an organization can be trained and involved in delivering on the brand promise, the more efficient and competitive the brand strategy will become.
Asian cultures have always valued the long-term aspects in almost any aspect of life. Asian boardrooms should use this unique strength to influence them in creating more successful brands – but it requires a different mindset in the Asian boardroom.
Martin Roll - Guest Contributor
A world-renowned thought-leader and advisor focusing on building and managing successful businesses through iconic brands, Martin Roll helps global clients to enhance financial value and create sustainable competitive advantage. Martin Roll is a highly accomplished speaker, presenter, moderator, and business columnist. He teaches at leading global business schools and holds an MBA from INSEAD. Author of global bestseller Asian Brand Strategy, Martin is currently writing four new global management books. Follow him @martinroll.
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