February 18, 2019

Reasons why a strong brand is important


A company’s brand can be its most valuable asset, but, justifying investment in them has never been harder.

There is of course a number of reasons for this, quarterly reporting and short-termism chief amongst them, but it’s also partly because, to quote Jeremy Bullmore, an advisory board member of advertising giant WPP, “brands are fiendishly complicated, elusive, slippery, half-real, half-virtual things. When CEO’s try to think about brands, their brains hurt”.

However, focussing on long-term brand building creates a more powerful business asset and will deliver a better long-term return on investment. 

Here we explore some evidence that reinforces the importance of investing in building a strong brand over the long-term:

• Strong brands far out-perform the average business in terms of shareholder returns, with the BrandZ portfolio of strong brands growing by 124.9% from 2006-2017 vs 34.9% for the MSCI World Index.

• Strong brands can capture on average 3x the sales volumeof weak brands according to a large study analysing shopper habits by Kantar Millward Brown.

• The same study showed strong brands were commanding a 13% price premium over weak brands, and 6% above the average brand. 

• It also found that strong brands are 4x as likely to growcompared to weak brands in the following 12 months.

• A 10% increase in share of voice can decrease people’s price sensitivity by from 5% to as much as 20% according to the same study. People are willing to pay more for strong, familiar, popular, visible brands.

• Brand-building activity drives much stronger sales growth over periods of 6+ months than the temporary uplifts driven from by short-term sales activation. Brand-building activity leads to long-term improvements in base sales that short-term sales activity cannot.

• 58% of the sales impact of all marketing communications activity is delivered in the long-term: if you’re only looking at the short-term impact you won’t see the full value of your investment.

• Online businesses in the UK now spend more on brand-building advertising than any other industry sector, over £1billion on TV alone in 2018. When Google, Amazon and Facebook are amongst the biggest spenders on TV, it’s evident that they’re deeply aware of the limits of the digital channels and formats in their own armouries to help them build their own brands.

• According to respondents in the Edelman Trust Barometer, a CEO’s number one task is ensuring their company is trusted. In other words, your consumers believe your CEO’s no.1 task is a brand and reputation-building task.

Investment in brand building should therefore not be a one-off ‘project’. It should be part of the ongoing activity of the business with an optimum split in investment between brand-building and sales activation being on average:
60% brand-building 
40% activation

Invest less than 60% in brand building activity and the equity required to generate future sales will not accumulate.

Investing in a building strong brand will help you build your most valuable asset and a platform that will:

• increase the chance of customers choosing your product or service over your competitors
• help you attract more customers at a lower cost per sale who are happy to pay a little more and will purchase your goods/services more often
• deliver more revenue, profit and growth, more efficiently, year after year, and so generate more shareholder value
• help attract, motivate and retain your second most important asset: your people
• create a barrier to entry for future competitors
• be able to build a connection with your customers where they value the quality of the experience and relationship over and above the price they pay for your products and services

In summary, building a strong brand platform is crucial to the long-term performance of your business. 

You therefore shouldn’t see investing in brand development as designing how your business looks. You should see investing in brand development as building a platform that enables the sustainable, long-term growth of your business.