Strong brands impact both the demand and supply curves to add value to the business. On the demand side brands enable a product to achieve a higher price at a given sales volume. Strong brands can also increase sales volumes and churn rates. Brands also establish more stable demand, through their relationship with consumers. They establish barriers to entry. The relationship with consumers is due to both functional and emotional attributes. On the functional side brands ensure recognition and further aid the purchase decision through a guarantee of quality. From an emotional perspective they satisfy aspiration and self expression requirements. A further benefit of strong brands is the ability to transfer the equity or values associated with a brand into new product categories.
On the supply side, strong brands have the ability to shift the supply curve downwards due to the following reasons:
• Greater trade and consumer recognition and loyalty. This results in lower sales conversion costs and more favorable supplier terms.
• Lower staff acquisition and retention costs.
• Lower cost of capital.
Long term value creation potential of the brands needs to be articulated by the management to the shareholders. Brand value added depends upon the differential advantage the brand offers, market economics and the ability of the management to unlock the brand value by objective based brand strategy whose purpose should be to maximise shareholder value.
Brand valuation helps the management to articulate the value of brand through balance sheet reporting which is mandatory as per IFRS 3 and it also plays significant role in merger & acquisition activity. Shareholders are increasingly keen to know the value of specific intangible assets as well as tangible assets being acquired.
The challenge to the senior executive teams is to demonstrate that brands are business assets capable of generating superior economic returns for their shareholders and worthy of multi-year investment commitments in New Product Development, R&D, Distribution and People.
On the supply side, strong brands have the ability to shift the supply curve downwards due to the following reasons:
• Greater trade and consumer recognition and loyalty. This results in lower sales conversion costs and more favorable supplier terms.
• Lower staff acquisition and retention costs.
• Lower cost of capital.
Long term value creation potential of the brands needs to be articulated by the management to the shareholders. Brand value added depends upon the differential advantage the brand offers, market economics and the ability of the management to unlock the brand value by objective based brand strategy whose purpose should be to maximise shareholder value.
Brand valuation helps the management to articulate the value of brand through balance sheet reporting which is mandatory as per IFRS 3 and it also plays significant role in merger & acquisition activity. Shareholders are increasingly keen to know the value of specific intangible assets as well as tangible assets being acquired.
The challenge to the senior executive teams is to demonstrate that brands are business assets capable of generating superior economic returns for their shareholders and worthy of multi-year investment commitments in New Product Development, R&D, Distribution and People.
For more articles, Click on IIPM Article.
Source : IIPM Editorial, 2010.
An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM B-School Detail
IIPM makes business education truly global
IIPM’s Management Consulting Arm - Planman Consulting
Arindam Chaudhuri (IIPM Dean) – ‘Every human being is a diamond’
Arindam Chaudhuri – Everything is not in our hands
Planman Technologies – IT Solutions at your finger tips
Planman Consulting
Arindam Chaudhuri's Portfolio - he is at his candid best by Society Magazine
IIPM ranked No 1 B-School in India
domain-b.com : IIPM ranked ahead of IIMs
IIPM: Management Education India
Prof. Rajita Chaudhuri's Website
IIPM B-School
Arindam Chaudhuri
Rajita Chaudhuri
Planman Consulting
