The Nature and Strength of a Brand’s Relationships

Brand immortality is fundamentally important to businesses in the 21st century because in Westernized economies the balance of shareholder value has shifted irrevocably from tangible assets to intangible assets. Intangible assets account for a growing proportion of companies’ market value, as corporate performance and profitability are driven more and more by the exchange and exploitation of ideas, information, expertise and service, and less and less by control over physical resources. Intangibles include patents, strategic alliances, customer lists, employee know-how and other forms of non-physical assets, but in many companies the most important intangible assets are brands. Intangible assets have therefore always existed, but only recently have they begun to be valued properly. Brands, in some sectors, comprise up to 70 per cent of companies’ market capitalization. he concept of the brand life cycle is an old-fashioned and outmoded one. While there are product or category life cycles, which go through the phases of birth, growth, maturity and decline, we believe that brands have the potential to be immortal. This is because the company’s relationship with the customer is based upon much more than the functional performance of the product or service that the company provides. It explains why brands may be immortal while mere products and services can die. Therefore, brands can liberate companies from the limitations of category (or product) life cycle and its destruction of shareholder value. This idea is now increasingly widely accepted, but sadly not universally, which is worrying for the shareholders in companies whose CEOs, CFOs and directors have yet to grasp the full importance of intangibles. The key role of marketing resides in expertise in managing a company’s customers by identifying, influencing, acquiring, serving, satisfying and retaining them at a profit. The product of this marketing process - its ‘customer capital’ - is the company’s customer base and, to a large degree, the present and future value of the business, as it is usually its prime revenue- generating asset. Boards should be keenly aware of, and planning to mitigate, the risk factors for the company in terms of the rate at which it is winning or losing customers and the rising, or falling, future revenues that implies. The nature and strength of a brand’s relationships with its customers can vary significantly over time and according to factors beyond the control of marketing that may affect either the company or the customer, or both. These factors might include the economic climate, social trends, technological advances, product or service performance, competitive activity, editorial coverage, and word of mouth as well as customer life stage, employment and personal experience, to name but a few. So the concept of ‘customer capital’ can be used to build a bridge between the inputs of business and marketing strategy and the outputs of revenue growth, profitability and shareholder value. Capitalism creates a vested interest in keeping brands alive, and every year, as the cost and complexity of creating brands increase, this interest strengthens. So success for companies will increasingly depend on the longevity of their brands. But successful brand management requires a full understanding within the company of the value of a brand. Only if this value is known and fully appreciated will there be less of a tendency to allow it to wither away: a new direction will be found for the brand to preserve its value and hence safeguard the historical investment made in it. Or it will be sold to someone who can make better use of it, but at full value rather than a distress sale price. The problem is that most companies do not have an accurate understanding of the value of their brands, and therefore many allow them to decline, while retaining ownership. It seems unlikely that this is in the interests of their shareholders in more than a tiny minority of cases. In some extreme situations the death of the brand through re-branding can become unavoidable if the product or service has been allowed to become too old-fashioned or uncompetitive to be sustainable. This rebirth is made a lot easier in retail by habitual shopping patterns and the fixed nature of outlets combining to ensure the new format starts with inherited customer footfall.