The Valuable Intangibles
A Strong Brand Can Add Value to the Selling Price of Your Business:
 A company’s brand can help it grow and become more profitable, or it can be an obstacle. All else being equal, a company with a strong brand will be more profitable — and valuable — than one with a weak brand. That’s at least in part because its customers are likely to be more loyal. Brand can also make a difference when selling a business. A well-respected brand can be what initially attracts buyers to a company. And though brand is an intangible asset, professional valuators take into account brands when calculating the market value of a business.
Key components
A business’s brand is made up of four key components:
1. Customers’ and other outsiders’ perceptions of the attributes of the company’s products and services,
2. Perceptions of the business itself — sometimes referred to as its corporate reputation or image,
3. Perceptions of employees and the nature of their relationships with customers as they service a business’s brand, and
4. The visual imagery, or graphic look and feel of the company.
This final component includes the appearance of products and packaging, corporate logos, business stationery and forms, advertisements, employee uniforms, and company vehicles. Sometimes companies confuse their brand with their corporate identity. The difference is simple: A company’s brand is how it’s perceived by customers and others outside the company; its identity is how it regards itself. And it’s always a mistake to assume the public perceives a company the way it regards itself.
Importance of a brand strategy
Of course, a business’s brand can be affected by factors that are out of the company’s control. Changes in the economy, the industry or competition can all damage a brand. There are, however, actions companies can take to shape external and internal perceptions of their firm, their products or services, and their employees. Taken together, these proactive steps are referred to as a brand strategy.
The branding process starts by understanding the attributes of the organization and its products and services in relation to others in its industry. Asking questions like these can get to the essence of the organization:
• Are the business’s products or services high or low quality?
• Are they high cost or low cost relative to the competition?
• Is the company focused on growth or profitability?
• To what extent does the company value innovation, client service, integrity or other goals?
Once a company defines its cultural values and business strategy, management needs to communicate them clearly and continuously throughout the organization. If employees don’t understand and endorse the corporate values and strategy, they can’t carry them out. Rewarding and recognizing performance that meets those goals is a particularly effective way of reinforcing them.
Shaping public perceptions
In addition to shaping the brand from the inside, a brand strategy must also address the many ways the business interacts with the outside world. Whether delivering products or services via sales, marketing, advertising, customer service, or other functions, a business should always try to differentiate itself from the competition.
For example, a business may have more branches in convenient locations than its competition does. Consistently
emphasizing that message in brochures and ads will give customers a clear idea of the value the company provides. Every single contact a business has with the public should strengthen its brand. This requires constant vigilance, because if a company doesn’t work hard to control its reputation, others — competitors, disgruntled customers, the media and regulators — will. Even large companies as sophisticated and successful as Nike have been hurt by underestimating the effects of certain public perceptions about them. Nike initially dismissed activists’ complaints about working conditions in the overseas manufacturing plants of its subcontractors — until the unfavorable publicity on college campuses and elsewhere affected footwear sales and raised concerns on Wall Street. It has since adopted proactive strategies aimed at restoring its public reputation.
Feedback is key
Understanding — and acting on — how customers and others view the business is the final key to a successful brand strategy. Companies must know who their most important public constituencies are and how they view the company. Market and customer satisfaction research is critical. An understanding of who customers are and how the company can best meet their needs will improve customer loyalty. This helps fuel growth and profitability during boom periods and sustains the business when the economy slows.
Valuing brands
Though brands — most often categorized as goodwill — are intangible assets, business valuators can attach an
actual value to them using several methods. The most common is to measure discounted cash flow — or the present value of future cash flows. Other methods measure the replacement cost of the brand (what it would take to rebuild it), or compare the relative value of a brand against those of competitors. Some valuation experts apply several approaches, combining financial-based methods with a subjective analysis of a company’s brand strategy.
Big payoff
When it’s time to sell, a strong brand will reinforce market value. Of course, most prospective buyers initially will be attracted by positive financial results. But due diligence — including testimonials from customers, vendors, peers and even creditors — should reveal brand strengths that reinforce a company’s financials.
Contact The Vantage Group today to see how we can help you evaluate and strengthen your brand to increase the value of your business.
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