What is the value of a strong brand?
A strong brand can be of great value to you. It ensures that customers are more likely to choose your brand, and it makes customers less price-sensitive. This, in turn, increases your market share and improves your profit margins. A brand always represents an asset on the balance sheet.
November 5, 2020
market value versus brand value
A company's market value includes a portion of brand value. But how much is a brand exactly worth? Brand strategist Ingmar de Lange refers to research by Jonathan Knowles (Type 2 Consulting) in his 'brand question blog series.' Knowles compiled various brand studies from 2010 to 2015, resulting in data for three hundred different brands. He concluded that on average, 20 percent of a company's market value consists of brand value. So if a company is sold for 1,000,000 euros, on average, 200,000 euros are paid for the brand.
strong brands work
Brand building is not typically the first investment that comes to mind for an entrepreneur. However, the value of it can become quickly evident with this example from Ronald Faas (Sustrain Support). During a workshop, he asked his students, "How much would you be willing to pay for this product?"
Both T-shirts have exactly the same technical specifications, but shirt 1 is 'brandless,' and shirt 2 is from the Nike brand. For shirt 1, people were willing to pay 5 to 8 euros, and for shirt 2, as much as 18 to 25 euros. So, the question isn't why a strong brand is important but how to build a strong brand.
how to build a stronger brand?
Now that we know a strong brand can be of great value, the question is: how do you make a brand stronger and more valuable? Researchers Les Binet and Peter Field have combined the promotional activities of various brands over the past decades and analyzed patterns. Their research shows that the best approach is to strike a proper balance between sales activation and brand building.
budget allocation for activation and brand building
But how much budget do you invest in sales and how much in brand building? There is a difference between consumer brands and business brands. According to Binet and Field, it is wise for consumer brands to allocate 60 percent of the budget to brand building and 40 percent to sales. For business brands, it's 46 percent for brand building and 54 percent for sales. Sales provide the short-term boost, but brand building delivers long-term growth.