Because brands drive future cash flows through effective market application, they are strategic assets. They add value to customers and are a key driver of business results, but must crucially be managed for the long-term.
Research shows that a strong brand, effectively managed and executed, will deliver significant returns to business owners. Weaker brands can actually destroy value. To have value, a brand needs to be associated with appropriate markets and quality products – and to be leveraged through effective marketing.
Long-term business value is the number one priority of virtually every CEO. It is a measure of the future cash potential of a business, measured by the total return to owners of the business over a number of years, typically five to 10 years.
Business value can be enhanced by:
- Accelerating cash flows–through faster time to market and speed of penetration, through accelerated trialing and strategic alliances.
- Enhancing cash flows–through higher prices and lower costs; by enhancing perceived value, and extending brand experiences.
- Reducing uncertainty–reducing the risk volatility of future cash flows, thereby reducing the discount rate applied to them.
Brands capture a business idea, they bring together marketing actions and affect the minds of customers, employees and investors. They add real and perceived value to customers, which must then be captured through a price premium, or a sustained flow of future business.
Strong brands are a key driver of business value creation:
- Brands accelerate consumer acceptance–a new product is more quickly accepted when marketed under a trusted brand.
- Brands change perceptions–people are prepared to pay more for a desired brand, such as Aveda for its scientific cosmetics.
- Brands increase business certainty–around 80% of investor decisions are based on potential performance beyond the next four years, such as the development of new drugs by GlaxoSmithkline.
Research found that 94% of directors think that a strong brand offers more protection during an economic downturn than any other major asset (such as products and services, people, capital, and physical assets).
Of the three most important concerns to businesses during a downturn–controlling costs, pressure on prices, and retaining customers–brands can play a crucial role in at least the last two. A strong brand will act like an anchor as markets become confusing and less confident for consumers.
A strong brand will rise above competitive price wars, sustaining a premium as competitors throw their margins away. Effectively managed brands support revenues and margins in order to sustain a business through hard times.
To reduce brand investment in a downturn may lead to a premature death. It is important to remember:
- Brands sustain revenues–at a time when consumers are more discerning and less trusting, strong brands such as Coke drive sales and retain customers.
- Brands sustain margins–at a time when competitors desperately slash prices, strong brands such as Porsche can sustain a premium.
- Brands sustain futures–despite short-term worries, strong brands give confidence that there is still a future worth investing in.
Brands are a key strategic asset, to be nurtured and exploited. Brands are the best Armour a company has to protect it in a downturn. Their registration as trade marks in order to protect their worth as valuable commercial assets is imperative.