Are you managing only half the value of your company? Yes, you are

Are you managing only half the value of your company? Yes, you are

Samir Dixit and Galih Rangha Putra | Business | Sat, November 02 2013, 12:20 PM

Ask a CEO or chief marketing officer about the value of their brand and chances are most would start to stare away from you. Ask around as to what percentage of a company’s enterprise value is in the intangibles, particularly in the brand, and you will likely get some more empty stares and quizzical expressions. The truth is, intangibles make up for a significantly large value of an enterprise. Yet, it’s an area of little focus among the management. While senior management does not necessarily measure the intangible assets, the discrepancy between market capitalization and book value of a company shows that investors very much do care about it. Globally, almost 50 percent of the total enterprise value across all brands is in the intangibles. Even though brands have long been recognized inside the marketing profession as an important asset, the question is how many companies really know and drive this unknown 50 percent of the value. Very few I would say.
Brands can confer considerable advantages, such as building customer loyalty and enabling a price premium for the branded product. So, it would be relatively safe to say that if the senior management of a company does not know the value of their brand, then they are not making much effort to drive up that value either.
Brands and brand equity affect all stakeholder groups, influencing the perceptions they have of the branded business, their preference or loyalty to that organization and their behavior. Consumers and customers buy more, for longer, at higher prices, while suppliers offer better terms of business and finance providers invest at lower cost. These and other stakeholder behaviors affect business value drivers to generate higher revenues, lower costs and greater capital value.
Brand managers need to understand how these brand equity attributes impact the branded business and need to develop marketing strategies to optimize brand switching behavior.
Brand building is not just about advertising, glitzy product launches, social media and corporate social responsibility. It’s about creating a long term asset that can help drive the bottom line.
As such, the valuation of brands is an important function, to provide tangible, financial evidence of their status as assets and an indication of the value generated through the investment in brand equity.
While a lot of companies use quantitative and qualitative market data for strategic discussions as well as in the boardroom, detailed financial analysis is what really needs to be conducted by product, by geographic and by demographic segment to maximize brand value. Such detailed metrics and financial analysis is a natural step in understanding and developing brand value.
Brand Finance has been researching intangible assets and the role of intangible assets since 2001 as part of its annual Global Intangible Finance Tracker (GIFTTM) study and had found that intangible assets play a significant part in enterprise value generation.
We firmly believe that brand valuation analysis can offer marketers and financiers critical insight into their marketing activities and should be considered as a key part of the decision-making process.
So, do you want to continue to manage only half the value of your company?
Samir Dixit is managing director of Brand Finance Asia-Pacific and Galih Rangha Putra is deputy managing director of Brand Finance Indonesia