Branding Creates Shareholder Value

With graduation season in full swing, we’re talking about the importance of branding and how it can contribute to long-term competitiveness and profitability. (Note: this article is one of three.)

There are eight universities in the so-called Ivy League, a term coined in 1937 by sports writer Caswell Adams in an article published in the New York Herald. One of the ivies, Yale University is about 35 miles from our Connecticut headquarters in Stamford. Founded in 1701, Yale’s motto is Light and Truth—Lux et Veritas in Latin and Urim ve Thummim in Hebrew—etched ubiquitously on crests around its New Haven campus. If you’ve ever visited, Yalies (shorthand for any Yale student, alumnus, alumna and others associated with the school) like students just about everywhere, love to wear school branded apparel and gear. It serves to strengthen the bonds between students and their schools, and in many ways, helps them to stand out in a sea of sameness.

The Ivy league, with all its history and prestige, has massive pricing power. With the average cost of tuition close to $90,000/year, these elite schools can charge a premium for their educational services, regardless if there is little real difference in quality between top tier schools. This illustrates how superior branding contributes to business value. Strong brands are business drivers and can drive real growth. The uplift can be seen in a number of ways, namely premium pricing, higher margins, market cap, stock performance and improved financial ratios.

Yet most management teams still view branding as an image exercise and more often than not, given low organizational priority. If you look at it in real financial terms, brand value is one of the main reasons why the market capitalization of a company often exceeds its book value in mergers, acquisitions, licensing, joint ventures and other financing negotiations. In addition, profitability ratios, such as gross profit margin, operating profit margin, net profit margin and return on equity all indicate higher overall performance and greater efficiency in managing assets and liabilities.

Branding is clearly not a luxury—especially when the bottom line is at stake.