Brand Building: An Investment in Future Financial Success
Global Head of BrandZ
Marketing is not a cost. Marketing is the most important investment any company should make to ensure long-term financial success. Brand strength leads to superior shareholder returns. At BrandZ, we’ve proved this connection: if you’d invested $100 on the stock market (the MSCI world index) in 2006, your return in 2015 would be $30. However, if you’d picked your portfolio from the BrandZ Top 100 the return would be $103 – three times greater. Brand building also brings resilience in challenging times. While the share price of all brands dropped during the economic downturn, it took strong brands just six months to recover – versus three years for average brands.
In China, it is widely acknowledged by businesses that strong brands help to generate a price premium and increase sales volumes. For many of the stock market’s leading performers it is the ‘brand’ that those businesses have built up that drives their market success. More organizations focus on building great brands so that they can benefit from market share, premiumization and business longevity.
While brand is not a passive asset, like the goodwill that is left over when the value of other assets has been subtracted, its role in business success is too important for financial analysts to ignore.
Brand is one of the most valuable financial asset types of modern corporations. It contributes more to shareholder value creation than any other tangible or intangible asset. Millward Brown research shows the additional value realized by brands to be as much as 50 percent of intangible capital.
Apple (AAPL:NDQ) is a good example of a tech business that uses brand to command a price premium and drive business sales. As one of the highest-ranking brands in our BrandZ Top 100 ranking of the Most Valuable Global Brands, its brand is valued at $148 billion. But in 2014, a growing perception that Apple was no longer redefining technology for consumers – which was reflected by a lack of dramatic new product launches – contributed to a 20 percent decline in Apple’s brand value. In 2015, the success of iPhone 6 and the launch of new products such as Apple Watch, Apple Pay pushed Apple back to the position of most valuable brand in the world.
Autohome Inc. (ADR: NYSE): Autohome Inc. is the leading online automobile news, social media and purchase site in China, providing independent and interactive content to automobile buyers and owners. Its brand was valued at $120 million at IPO. Autohome Inc’s CEO, James Qin, believes that IPOs are the time to focus the business away from products and toward the needs of existing and future customers, and what a brand will do to support and grow this base. With the support of BrandZ methodology, the Autohome board decided to expand into auto e-commerce and the used car business, with an aligned brand vision “Lead everything Auto” to be executed through brand development plans. Revenue year-on-year increased by 82.1 percent to $100.5million for the first quarter of 2015, reflected by stock market growth of over 72 percent.
The number of Chinese brands in the BrandZ Global Top 100 has risen from just one in 2006 to 14 in 2015, and their total Brand Power has increased 1,004 percent. Chinese brands have learned from and followed Western brands, and now they have started to lead. The majority are not yet truly globalized, but they’re ambitious and growing in value extremely fast – and they will change the global competitive landscape.
To win in the next decade, building difference is the must-do for Chinese brands
Here's one big challenge Chinese brands are facing: compared to multi-national brands in China, Chinese brands are lagging way behind on “being different”. For example, in consumers’ minds, local brands are less trend-setting and lack experience of telling compelling brand stories. In a world with so much product similarity, brands which consumers view as “different” achieve higher value. Those that have remained in the top half of the BrandZ ranking over the last 10 years are scored very highly on “difference” by consumers, and have grown 124 percent in brand value. In contrast, brands in the bottom half of the ranking score lower and have increased only 24 percent in value.
Difference can enable a brand to command a higher price and yield a higher profit. It isn’t just about the product; differentiation can also be found through purpose, personality, values, and design. Category leaders like Coca-Cola and BMW need to guard leadership and keep refreshing their brand messages to be always unique.
As China is experiencing the historical Internet+ technology explosion, it’s a critical time for technology companies to build strong brands. Chinese brands should consider a comprehensive review of the brand’s value proposition in order to answer two important questions: “What does my brand stand for” and “What purpose can we fulfill to make a positive difference in people’s lives”. We need to move beyond the product functional benefit – “what”, to emotional benefits and purposeful benefits – “why” – why we do what we do? As a good recent example, Smartizan T2 phone created a “pair-up solution” to help senior citizens fix smart phone issues via the remote “same-time” help app on their children’s phones. This is not just a smart solution, but more importantly, it serves a greater social purpose to make seniors’ lives easier and give them the opportunity to truly enjoy the mobile world.
To remain competitive through the next decade, and to develop into the world’s most valuable brands, Chinese brands should stop seeing brand building as a cost and view it as an investment in future financial success. They need a holistic brand building system that focuses on every aspect – from communications to CRM to creating the whole experience – to make consumers’ lives better, build meaningful difference and embrace disruptive technologies. Brands are a fabulous investment, and need to be nurtured and cared for accordingly.