IPA/Brand Finance report proves strong brands are critical assets that deliver value

A series of powerful, evidence-backed insights have been published in a new Brand Finance Report, commissioned by the IPA and delivered at the flagship cross-industry IPA EffWorks Global 2022 Conference today (Wednesday 12 October).

By analysing both S&P and new data from the FTSE 100 benchmarks, the report Why Brands Matter 2022: New Evidence from the UK, reveals that the strongest brands deliver much higher shareholder returns. In the UK, the top 50 brands delivered returns 30% higher in 2021 and even in the current climate, the cumulative return is 10% higher.

Furthermore, the report details that organisations whose brands make up a larger share of their total value, i.e. have a high brand value to equity value ratio (high BV/EV) deliver even greater growth, stability, and returns. Whilst the top 50 strongest brands delivered 30% higher returns than the FTSE 100 in 2021, the high BV/EV brands delivered 80%. The report asserts that this demonstrates strong brands are a critical strategic asset that deliver value, with their budgets an investment not a cost.

The new global report is based on Brand Finance’s latest analysis of a range of its studies and underlines the critical role brands play in the economy both at times of crises and in recovery; how they deliver stability and reduce risk; how they restart economies and build consumer confidence; how they deliver national competitiveness and, above all, how strong brands outperform their competitors. It also looks at some of the building blocks of strong brands and outlines the role that familiarity and consideration play in developing that strength and how they can help to explain and predict market share.

Further key findings from the report:

• Strongly branded companies recover quickly after a crisis and retain their performance. Brand Finance’s UK data proves this for each crisis – 2012 / 2018 and it now has data for 2020 which again demonstrates this speed in recovery.

• Investors consider companies with strong brands as less of a risk. The cost of capital is less. They pay less on debt. Global data suggests strongly branded companies pay at least 3% less on their debt. The UK is slightly lower at 1.7%, .For example, for Kingfisher plc an increase in brand strength across its portfolio could mean a saving of up to £65m in a year.

• The rise of the global value of intangible assets continues. From 2020 to 2021, the total global intangible asset value grew faster than usual to exceed pre-pandemic levels by nearly a quarter, having increased 23% post COVID to $74 trillion.

• Brand Finance estimates that intangibles represent over half of total organisational value. Of this, Brand Finance estimates marketing-related intangibles represent at least 20% of organisations’ intangible assets. However, the synergies between marketing and other intangibles; the investment they attract and the value, growth and competitive advantage they deliver are now being analysed as never before. For many years, Brand Finance and the IPA have been advocating the value of economic competencies such as advertising and brands, marketing research, digital and analytical skills, and innovation, but calls for their importance to be better recognised are now coming from an increasing number of influential organisations including Princeton University and McKinsey.

• Recent analysis by McKinsey found that investment in marketing intangibles delivers long term economic growth. Top growing companies invest 2.6 times more in intangibles than low growers across sectors. The gap between them increases to between five and seven times in sectors such as financial services where competitive advantage is anchored on knowledge. This research further validates the compelling link between brands, marketing and the creation of value. It also underlines that far from encouraging companies to reduce investment in brands, governments who wish to accelerate economic growth should be supporting and fostering it.

• Investment in intangibles also helps to drive international competitiveness. In this regard, the UK is slipping behind. The total value of UK intangibles dropped in 2020, contrary to the US, China, and Germany. In total Brand Value growth, the UK is also lagging behind Global levels. Brand Finance’s latest data reveals the value of the top 50 Global Brands have grown 17% year on year but the top 50 UK brands have grown 11% between 2021 and 2022. In 2011 the Global Top 50 and UK Top 50 grew at the same rate.

• The overall image of the UK, as well as the products and brands it produces, are measured in the Global Soft Power Index. Whilst the UK is ranked 2nd overall in the Global Soft Power Index, the area in which it does less well is the perception of the UK in having “Products and Brands the World Loves”, where it is ranked 7th, behind Japan, US, China, France, Germany, and Italy. Another reason for governments to cultivate brand investment.

• Return on brand investment can be improved by going back to basics and focusing on familiarity and consideration. Brand Finance has created a metric based on these factors called “BrandBeta”. The Brand Beta model is calculated based on both familiarity and consideration, where consideration is the proportion of people familiar with a brand who are willing to consider it. This metric measures the popularity and mental availability of brands, which it also uses as a predictor of market share. The BrandBeta score demonstrates that 80% of the variance in market share is explained by these two metrics familiarity and consideration. Familiarity – when a customer knows a brand and what it does, well, as opposed to just being ‘aware’ of it, accounts for 65% of this market share variance, and Consideration – whether the customer will choose it, for 35%. The BrandBeta data reveals that a 1% increase in BrandBeta score equates to a 12% increase in claimed usage.

Annie Brown, Brand Finance General Manager UK Consulting, said: “UK businesses are facing inflated energy prices, global supply chain issues, changes due to Brexit, the fallout from Covid-19 and the uncertainty of a new political landscape with economic turbulence. Cutting marketing budgets may seem like a simple fix to help weather these challenges, but now is not a time for brands to lower the quality of their goods and services or risk reduction in familiarity and consideration. Instead they should be ensuring the premium of their goods or services remains strong, to maintain margins, cash flow and the tax base.

“As the data in this report demonstrates, those brands who keep their nerve and ensure the strength of their brand are more likely than ever to come through the other side from any disruption not only quicker but stronger and more profitable.”

Janet Hull OBE, Director of Marketing Strategy, IPA, added: “We are delighted to join Brand Finance in their examination of the benefits and performance of strong brands in 2022. This report comes at a most appropriate moment, as companies look for guidance on how to manage their brands and businesses to deliver sustainable, profitable growth and shareholder return, at a time of economic uncertainty.

“We have always believed that intangible assets are a critical pillar of competitive advantage and value creation. We supported the launch of the Global Intangible Finance Tracker (GIFT) Report with Brand Finance in 1996. It is gratifying to see that commentators and specialists around the world are now focusing more on this vital area of investment, not cost.”