The strength of a company’s brand is way more important than any other the factor – ahead of leadership and tech innovation – according to City investment analysts but there is still work to be done to educate them on the role of marketing spend in maintaining a price premium.
This is according to new research by IPA/Brand Finance and an analysis by Ian Whittaker, a former City analyst and founder and managing director of Liberty Sky Advisors, to be unveiled at the IPA EffWorks Global 2023 Conference later today (October 10).
The survey was completed by over 200 financial analysts who cover publicly listed companies in the UK and US and quizzed them on how they appraise and analyse the companies they cover. It reveals that, while leadership (76%) and innovation (72%) are crucial, it is the strength of the brand (79%) which overrides everything.
Further findings reveal that more analysts perceive advertising as an investment (37%) than a cost (24%), although more (38%) still state it is a mixture of both.
Building on this, according to the findings, the analysts who examine advertising and promotions are significantly more likely to believe marketing is an investment and that it drives organic growth.
Even so, despite the positive perception in some areas, the results show a seeming lack of understanding of marketing in other areas.
For example, marketing was seen as contributing most to “profit margins” (77%) and “sales volume” (71%) – but less in areas such as “sales price” ie premium generated (54%) and “share price” (44%).
This is contrary to current evidence that Ian Whittaker has analysed from some major global brands, which shows how strong brands managed to retain volume share despite price increases.
In addition, when asked for their reactions if one of the companies they analysed announced a marketing spend cut, only 36% of analysts felt it was a ‘short-term fix with long-term negative consequences’ compared to over half (52%) who said they saw it as a ‘positive cost-saving measure’.
When asked whether they thought marketing spend should be treated like technology R&D, where it is capitalised, nearly 90% of analysts said they believe marketing spend should be placed in capital expenditure either all (56%), or part of the time (33%). Two thirds of analysts (67%) also want to see changes to how intangible assets as a whole are reported on and accounted for.
Those who stated they think it should be capitalised at least some of the time believe it would improve their ability to value the company and give them better understanding of future growth potential.
Further to his analysis of the findings, among Whittaker’s conclusions and recommendations are that marketers need to make the argument that marketing is more an investment, than a cost.
He also believes that the marketing industry needs to educate analysts on the link between marketing and price premium and other value levers, particularly long term.
The investment community is now looking for more information on marketing spend. This engagement improves perception of that spend and brand owners should be encouraged to disclose this.
Crucially, the last 18 months has given a real-life, unplanned experiment, showing how brand strength has proved crucial to both growing firms’ top-line and protecting their earnings.
IPA director of effectiveness Laurence Green said: “This survey provides welcome news that investors are placing increasing interest and importance on investment in brands.
“To facilitate this and to improve understanding, it is incumbent on brand owners to provide the relevant data and evidence to investors, and to engage with them using their language in order to make the most compelling case for marketing as a long-term investment.”
Brand Finance general manager Annie Brown added: “When companies spend money to change the way people see their brand, they are not doing it for a one-off result. They do it to build up the long-term value of their brand asset.
“Therefore, advertising spend should, in most cases, be considered an investment for future growth, not just a cost for delivering immediate business.”
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