HOW TO INVEST IN FUTURE VALUE (part two)
HOW TO INVEST IN FUTURE VALUE (part two)
Friday, 27 April 2007 01:31
HOW TO INVEST IN FUTURE VALUE Part Two
by Jeremy Sampson, Chief Executive, Interbrand Sampson
In 2005, two major takeovers in South Africa, were Barclays plc acquiring Absa, and Vodafone acquiring Vodacom from Venfin. Now Barclays and Vodafone are both held in very high regard, are citizens of the world, and have carried out many acquisitions. So you wouldn’t expect them to over pay. Therefore it is worth noting that in both cases, the price paid was nearly 50% higher that the price ruling on the JSE at the time of the initial bid. We would argue that the local investment community was failing to recognize the added value brought to both companies being acquired by having a strong brand, nor the future potential of both companies.
To give another example, one of the largest global takeovers last year was Procter & Gamble acquiring Gillette, and with it Braun and Duracell. P&G is led by Mr. AG Laffley, someone who leads quietly from the front, ensuring that a true marketing culture pervades the whole organization, together with a true measurement culture. P&G see superior measurement as being at the heart of the business success and so creating a competitive advantage. The price he paid for Gillette was $57 billion, of which most was for the brands.
Looking at the recently published (September 3 2006) Sunday Times, Business Times, Markinor Top Brands issue, it becomes apparent that whether we like it or not, brands have huge influence on our lives. Berkshire Hathaway maestro Mr. Warren Buffett has long argued that a major consideration of any investment he makes is the future potential of a company, and one of the factors he will consider is the brand aspect and future demand. As Dr. Anton Rupert was quoted: “If I had to face a choice of having all the groups factories burn down and retaining only its trademarks, or a second where the factories remained intact but the trademarks were declared invalid, I would obviously choose the survival of the trademarks.” Two of the major local brands are the same two I referred to earlier as being the subject of takeovers: Absa – now according to Markinor SA’s top bank brand, and Vodacom, South Africa’s leading cellular network, and Telkom, whilst going through the transition of a new CEO and switching focus, has the undeniable benefit in financial terms of owning 50% of Vodacom. Looking around the local brandscape, it’s fascinating to look at brands that are generating huge traction, but I wonder if this is really reflected in the share prices of the companies owning them.
A recent paper from the Economist Intelligence Unit addresses the subject of how much to spend in marketing brands. I have often pointed out that under 2% of annual revenues is too low, and dependent on category from 4% upwards is the minimum. That is a total shock to many local companies often resulting in considerable disagreement. Have a look at the figures, (see chart) and you will find that today to compete globally, the norm is from 6% upward. That could result in your brands changing your business strategy, or indeed you may not be able to support even one brand. The fact remains that many companies, products and services do not enjoy the status of being a brand, do not add value, and are not worthy of the epithet, partly because they are not treated as brands.
The real brands, the ones that have significant value and momentum and are suitably supported, are the ones that will continue to add huge value well into the future. As the momentum builds to 2010, many major South African brands should enjoy increasingly buoyant times, whilst the non-branders will wallow in the background. For any Chairman and CEO, I would suggest there is no greater challenge for them of making their company and its brands more relevant in the next decade, so growing the future value of their companies in a sustainable manner.
(Part one of this article is available on this website under the title: Three Steps to a Winning Personal Brand Part One)
