Corporate brand value

By James R. Gregory, CEO, CoreBrand
Original article at Admap (login required)

Coca-Cola and Colgate-Palmolive reap huge value from their corporate branding. P&G and others are starting to realise the opportunity

Consumer packaged goods companies like Unilever, Procter & Gamble and Nestle have struggled with the idea of full-fledged support of their corporate brands. The main focus of their branding efforts should be where it is — on their product brands. I understand and support that focus but, on the other hand, there is tremendous value to marketing the corporate brand and it doesn't have to take away from product branding. Why then do some consumer companies fumble rather than capitalise on corporate branding?

The connection between corporate image and market capitalisation is evident from empirical research conducted by academics, consultants, and branding firms, and is used daily by enlightened corporations. Unfortunately, due to GAAP (Generally Accepted Accounting Principles) accounting standards, the connection remains "virtual" by finance, rather than being universally recognised as a driving force for corporate growth. Measuring and valuing brands has advanced by light years over the past two decades, but the accounting profession has been slow to recognise the huge, and growing, value of the intangible asset known as the "corporate brand".

CoreBrand's 20-year quantitative research study and regression models — the Corporate Branding Index® — provides continuous data, insights and corporate brand valuation for over 800 companies, across 49 industries. This longitudinal research study finds that the corporate brand accounts for between 5% to 7% of market capitalisation of the companies tracked.

Corporate brand value varies significantly by type of industry and general economic conditions. For some industries, like building materials, the brand has relatively low impact, making only a 2% average contribution to market capitalisation. Consumer-facing companies, however, have much higher corporate brand valuations. In the beverage industry, for example, the corporate brand plays a major role, showing an 11% average impact on market capitalisation. For corporations where the company name and the primary product brand are the same, the impact is even greater. The corporate brand equity value of The Coca-Cola Company is 21% of market capitalisation. This is a "premium effect" on stock performance over and above the expected impact that a brand will have on revenue, cash flow, earnings, and other financial factors.

Let's examine the premium effect generated by the corporate brand. We'll look at brand equity as a percentage of market cap by extrapolating the value based on the number of shares outstanding from two points in time: 2002 to 2010.

Both P&G and Colgate-Palmolive are primarily, and appropriately, focused on marketing and selling their product brands. Since neither company is well known for building their corporate brands why does Colgate-Palmolive get a greater percentage of market capitalisation from its corporate brand and P&G reports a declining score? Simply put, Colgate-Palmolive enjoys a corporate name that is the same as two of its major product lines.

P&G, on the other hand, takes great pride in not promoting its corporate brand. The Procter & Gamble name is not to be found on its products, packaging, or advertising in the US. It steadfastly holds to the belief that product brands are the only things that count and that the corporate brand need not be actively marketed. Fair enough, but what about the opportunity cost? If P&G's corporate brand equity were to equal Colgate-Palmolive's brand equity at 18.9%, the increased value would equal $6 billion in increased market capitalisation.

Practically speaking, what would P&G have to do to achieve that higher valuation? First, I would recommend that all advertising carry the Procter & Gamble name and logo as part of the sign-off. All packaging should include the same name and logo in small type in an unobtrusive corner. A modest but consistent corporate campaign should be developed, and run in business titles, describing the overall vision of the company, as well as the breadth and depth of the product lines. Finally, it might consider an opportunistic, but thoughtful, campaign — similar to the "They'll always be kids" salute to mothers during the Olympics.

The total cost of this modest effort for a company the size of P&G is estimated at about $100 million a year. Over five years, an investment of $500 million would yield a potential return of $6 billion, or an ROI of 12:1.

Here are ten reasons why brand valuation matters:

Brand valuation legitimises investment
By understanding and defining the value that the brand creates, questions about brand building investments change from whether to invest, to how much to invest. Companies that understand this value can manage their brand investment to maintain and maximise value. Top performing corporate brands are companies that communicate aggressively to influence their market landscape, thus shaping their markets to their strengths and reaping the associated benefits.

Brand valuation provides an objective measure of effort
By measuring the impact of brand building, corporate leadership can evaluate the quality of branding efforts without resorting to opinion or personal perspective. Measurement and metrics add science to the art of creative brand building.

Brand valuation creates accountability
By utilising a tangible measure of impact, leadership and marketing teams can be evaluated by their stewardship and management of a tangible asset over the long term.

Brand valuation aligns leadership
Creating a common vocabulary for the brand gives marketing an equal seat at the management table. Because the return on branding efforts can be identified and tracked over time, the effort and return for any department is visible. This permits all groups to work together for the optimum return.

Brand valuation identifies growth opportunities
Understanding brand value illustrates the opportunity to advance a business not only through geographical growth, but also through product/service adjacencies.

Brand valuation predicts market shifts
By understanding the relationship between brand value and other performance drivers, management can identify changing market conditions. This is usually best done by asking the right questions, researching continuously, and creating custom models that zealously seek the answers.

Brand valuation identifies competitive opportunity and advantage
Understanding brand value relative to competitors can drive changes in market-growth strategies. By understanding the value of your brand vs competitors, and the dimensions that drive that value, you gain valuable intelligence for creating and maintaining competitive market advantage in the areas that define business success. Understanding the market can point a company in the direction of sustained growth.

Brand valuation informs M&A or strategic alliances
Understanding the value of all business assets will inform negotiations in mergers, acquisitions, and partnerships. M&A can be tricky, and emotional attachments to pre-existing entities can be strong. But by understanding the value and dimension of all brands involved, leadership can strategically deploy those brands for maximum impact.

Brand valuation creates licensing opportunities
Understanding the brand's value permits predictable revenue growth through licensing efforts. A brand on the move creates momentum that can be leveraged. Licensing is a great way to make significant income from the brand itself.

Brand valuation helps to define the value of other intangibles
Corporate Social Responsibility, philanthropy, and other "goodwill" efforts can be better understood, quantified, and valued. Is it good business to do good? We know from our brand valuation that it can have a direct impact on market capitalisation. Measuring the amount of impact can help make CSR a business decision, as well as one based purely on the "goodness" of the company.

When done well, corporate branding and product branding should appear seamless. I predict the next ten years will see spectacular combined campaigns from the leading consumer companies. P&G's "Thanks Mom" campaign during last year's Youth Olympics was just the beginning of this trend.

More on corporate brand value at www.warc.com

Add comment