Branding crucial in enhancing investments

Branding is an ever-essential part of all commercial activities and financial pundits have realised this and are giving it the priority it deserves. While it is heartening to observe this positive trend, we still frequently observe a neglected area – branding. It appears branding is often either ignored or relegated to a list of marketing to-dos. It should be a priority action.

An intelligently aligned brand strategy will directly and positively impact financial returns. It is both a driver of operational change and a critical success factor in enhancing brand equity and elevating investments.

The financial community started to recognise the financial value of brand names in the early 1980s. It is now commonly known as Brand Equity and contributes considerably to the total market value of an enterprise. In 2003, Fortune magazine reported on a study of the market value of 3,500 US companies that clearly demonstrated this phenomenon. It showed that the relationship of brand equity to book value increased from three per cent in 1978 to 72 per cent in 1998.

In 2009, the top five publicly listed Gulf Corporation Council (GCC) power brands – Emirates, Qtel, STC, Zain and Etisalat – had a combined brand value of $11.5 billion (Dh42.23bn). They still have a long way to go to reach the ranks of Wal-Mart ($40.6bn) or Coca-Cola ($32.7bn), but their growing value clearly demonstrates the benefit of taking a strategic approach to brand building.

Brand valuation is now recognised as a primary tool in management decision-making and is used for value-based marketing, marketing and advertising planning, and for the recognition of intangible assets on company balance sheets. Essentially, there are two areas where brand strategy should be incorporated into the process:

- Pre-acquisition assessment – Incorporating brand valuation and a brand audit into the due diligence stage: Brands are incredibly powerful in altering demand patterns and a brand's value can be equally volatile. As with all balance sheet assets, brand value is a snapshot figure and it is important to understand the underlying characteristics. The due diligence stage is a critical opportunity to gain a deeper insight into a brand's potential for growth and could make the difference between a positive or negative Return-On-Investment (ROI).

Brand valuation has a number of approaches, and the chosen method is largely dependent on the quantity and quality of information available to support your calculation. The most commonly used valuation methods are based on cost, market value, economic use and royalty relief, where a brand is treated as a separate entity which charges a royalty to the operational side of business for use of the name. A brand audit can enhance an understanding of the elements likely to affect a brand's future equity.

- Post-investment involvement – Brand strategy as an integral component of the strategic planning and operational improvement process: Industry sector growth in the Middle East and North Africa has now shifted from almost unaided double-digit growth to compounded growth rates closer associated with saturated or even declining markets. The brand decisions that companies make ultimately affect the organisation's long-term ability to achieve its business objectives and it is imperative that your portfolio companies have a clearly articulated positioning that differentiates them from their competitors.

Essentially, the Brand Strategy process can be summarised in three stages: developing brand purpose, ensuring brand differentiation and relevance and align the brand experience.

In the current low deal volume environment, PE firms have the capacity to get more involved with their investments, challenging their teams to use their research and analysis skill-base to help their portfolio companies better understand their markets, and where necessary, bring in external resources to develop clear, progressive strategies.

However, the rise of international competition in the region is forcing these traditional operations to become brand savvy. It is important to demonstrate a deep knowledge of their organisation and genuine audience and consumer insights as part of the pre-deal process.

Above all, branding is not a one-time exercise; it is an iterative process that needs ongoing attention to align the organisation and build trust with its customers.

- The author is Project Manager at Siegel+Gale Middle East. The views expressed are his own