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Brand Value & Pricing Featured

How Brands Create Financial Value

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I’ve recently been working on some analysis looking at market share change. I’ll share this with you soon and you can let me know what you think. In the meantime though, my colleague, Mario Simon, has described the findings as “provocative.” Mario has outlined the three main ways in which he believes brands create financial value growth, so I thought I would outline them here and see if you can add to them.

1. Ensure Maximum Disruption

If my analysis of market share change is correct, then significant change does not happen that often. As noted before, brands need to make the most of occasions when they get the chance to disrupt the category status quo. Mario noted, brands that create new categories or exceed an existing category are the ones that become really valuable. He listed Red Bull, Starbucks and the Apple iPhone as examples. I would simply add to this by noting that innovation need not be limited to product. Sometimes innovation comes through how the brand positions and presents itself.

2. Maintain Price Premium

In the absence of disruptive innovation then brands need to focus on what Mario described as “hygiene factors.” Seeking to drive incremental volume growth without undermining margins is still valuable, if not as exciting as launching game-changing new products. Most volume growth comes from being in the right categories and countries, so simply holding market share can grow financial value if the brand is in the right place with the right product at the right price.

3. Enable The Company To Leverage A Strategic Asset

Perhaps the biggest pay off of creating a strong brand is permission to extend into new product categories. If you have successfully built a strong brand, you can leverage the positive feeling people have for it by launching new products in categories that fit the brand positioning. In cases like these, it is more about how well you deliver on the brand promise. The brand itself is already well-known and appreciated.

These three means of growing financial value make good sense at the macro level. But the real challenge is then to link that to the micro. Brand value is created, and destroyed, at the individual level when a potential buyer interacts with the brand. And it seems to me that this is the biggest challenge of growing and maintaining a strong brand. You need to understand and operate at both levels at once: managing the business at the macro level while recognizing the possible influence on individual brand buyers. Sometimes what makes sense at one level has negative consequences at the other.

So do the three ways that brands can grow financial value make sense to you? What other ways can brands grow financial value? Please share your thoughts.

Contributed to Branding Strategy Insider by: Nigel Hollis, Chief Global Analyst Millward Brown

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2 Comments

Nilan Fernando on October 05th, 2012 said

While considering the above main points I think a brand should always create value to society such as being environmentally friendly, like Google — they purchase energy from wind mill farms and they run their servers on green energy at the same time helping to reduce their carbon foot print. This helps both the environment and creating more business opportunities to the SME sector.

Jose Alvarado Risoul on October 08th, 2012 said

Borrowing some thoughts from Peter Doyle’s “Value-Based Marketing”, another two ways a strong brand may create financial value are:

- Extend duration of cash flow – strong brands last longer than weak ones, therefore a strong brand would generate profits for a longer period of time than a weak brand.

- Reduce cost of capital – A strong brand facilitates access to financial markets with more favorable conditions (lower perceived risk); also, perception influences the price of the stock.

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