What’s The Value of Branding?

23 Aug 2011, Posted by Samantha in brands, 0 Comments

CO-OP sat down with Martin Jansen, Head of International Equities (U.S.) at ING Investment Management, to discuss why, even in a downturned economy, investing in your brand is one of the smartest moves you can make. 

CO-OP. Why is branding important?

MJ. We live in a world of multiple choices – so lot’s of products and services competing for the same dollar. Therefore it’s key to be different and stand out for the right reasons. Smart branding does that and can have a tremendous impact on a company’s bottom line.

CO-OP. What does it mean to be a good brand?

MJ. Once the brand has been defined it’s imperative that you execute and support extremely well. The hallmark of a good brand is about long term consistency. That means managing and always investing in a brand – never letting quality slip.

CO-OP. What’s value branding from a financial perspective, performance or stock value?

MJ. It’s enormous! because at the end of the day if you have something truly different to offer you have pricing power. So good brands set the pace making the barriers of entry higher. This typically also means good brands have higher margins which in turn means a  higher multiple on your earnings. Higher margins in turn generate a higher return on invested capital and generally reduces the volatility of profits compared to lower margin peers.

CO-OP. Name some brands whose stock values have benefitted from a great brand strategy?

MJ. Branding is a balance of the functionality of the product and the emotive engagement or connection it makes. This is why brands like Apple and Coke have consistently performed well overtime in financial marketplace.

Apple has always been ahead of the technology curve with functional solutions, but it’s the creativity and design that really set’s them apart. They have consistently invested in the brand and that’s why you have people sleeping out, cueing up (cult like) for their products. They have a formidable advantage.

On the flip side the Toyota brand known for quality doomed itself by cutting corners and not staying true to the values of the company. It takes years to build a brand but you can destroy it in a second.

Another really important area is brand architecture when it comes to acquisition. Make sure the brands you want to make part of the family are the right fit and don’t contaminate what you have and jeopardize all previous investment. Point in case being Mercedes and Chrysler.

CO-OP. What brands do you personally like Martin?

MJ. I really like IKEA because of their dedication and focus on design from a business and aesthetic level. While they’re not a listed stock the value of the brand has been built on the concept of taking Swedish minimalistic design, sourcing products from all over the world to create a stylish very affordable product that’s been rolled out on the global level very successfully. It’s a remarkable brand to me.

Of course I like Apple as mentioned before and I like the VW group. From a master-brand perspective, they have done a great job of managing their sub brands individually  -  Audi, VW, Skoda and Seat – but managed to keep the individual brand values intact throughout.

Another consumer facing brand that I admire is Zara which is owned by the Spanish Inditex group which actually owns their own village. I know because I have three females in the house that their method of understanding fashion needs from local standpoint sets them apart. They are smart in that inventory control is strategically designed to accommodate trend demand which enables product availability in the right place at the right time.

CO-OP. What does it take for a brand to perform in a recession?

MJ. It’ boils down to commitment, dedication and loyalty. Management and staff who truly believe in the brand. They will take the short term financial loss without trying to compensate by cutting costs/quality. I call this a “philosophical investment.”

CO-OP. Any parting thoughts or insights you’d like to pass along?

MJ. Yes, to all those rational minded businessman out there. Make sure your business strategies are aligned with a strong brand vision. Because at the end of day, the long term  trumps  the short term by far.

The information contained herein reflects the personal views and opinions of the interviewee and not ING Investment Management or its affiliates. The individual companies mentioned are for illustrative purposes only and should not be construed as investment advice.