Brands are not physical items, but they have real value for businesses. Thinking of a brand as an asset is a powerful idea.
Have you struggled to convince people in your organization to invest in branding? Or have you wondered how to conceive of a brand? One way to conceive of a brand and get people excited about branding campaigns is to explain that a brand is an asset; it has value and generates future profits. The rethinking of a brand as an asset is the single most influential idea in marketing.
Is a brand an intangible asset? The answer to that question is crucial because it will determine how businesses should spend their money.
If a brand is not an asset, then any branding should support short-term sales. A branding campaign would only be a success if it raised sales immediately. But we know that this is an unreasonable expectation because sticking a logo that no one knows is not going to boost sales. Branding efforts cumulatively stacks to make selling easier over time.
If a brand is an asset, then it would be worth investing in because it would pay off in the long run. Much like an asset like a machine, it may be expensive at first but make money in time.
So (spoiler alert!) a brand is an asset.
Like any asset, brands require long term investment and will pay dividends over time. Brands have value and can be bought and sold. Brands are best used when they service the strategic vision of the company. All of these are properties that branding has in common with any business asset.
But there is a big caveat. Where a strong brand is always helpful, it is more valuable in specific industries. Interbrand’s Top 100 Most Valuable Brands come from only five sectors: Automotive, Technology, Financial Services, Luxury, and Fast-Moving Consumer Goods. The equity of the brands generally accounts for 20-30% of the companies’ total value in these industries.
Marketers can overstate the value of branding across the board when there are industries where branding efforts will not return the same results. Companies competing in commodity industries like Capital Goods, Energy, and Materials cannot leverage strong brands like other businesses. (Jonathan Knowles makes this point well in his article in Marketing Journal.)
In this article, we will dive deep into intangible assets and brands as assets. We will learn that an intangible asset is a non-physical thing of value. We will talk about the strategic benefit of thinking of brands as assets. We will talk about how the using and investing in a brand builds brand equity. I will explain the difference between “brand assets” and “brand as asset.” And finally, you will learn how brand asset relates to other types of intangible assets.
What is an Intangible Asset?
You cannot touch an intangible asset, but it is crucial to the future success of a business and, thus, has value.
An intangible asset is a non-physical part of a business that has value, i.e., it is vital to the business’s future success and/or it could be sold to another company.
Typical examples of non-tangible assets are:
- Employees Under Contract
- Information Technology
Businesses can create intangible assets through the investment of money and man-hours. For example, a research and development team can create a new design for a product and patent it. The money and man-hours resulted in a sustainable advantage for the business.
These intangible assets make producing and delivering a product more efficient and less expensive, or they make the product more valuable to the customer. For example, a great production manager and a top-notch manufacturing team can make more products in less time with fewer resources, or product designers can make a product fit with customer’s tastes, making it more valuable to them.
Much like property rights for tangible assets, there are legal rights and protections in developed countries so that businesses can assert ownership and leverage their investment in them. These protections include intellectual property laws and contracts.
Tangible Assets vs. Intangible Assets
Tangible assets are physical and easily used-up. Intangible assets are non-physical and have enduring value.
Assets are anything that a business owns and has a positive value. Assets can be divided into two broad categories: tangible assets and intangible assets.
Tangible assets are physical items of value to a business. They include cash, land, buildings, machinery, inventory, and investments.
Intangible assets are not physical but have real value to the organization. An organization’s brand is an intangible asset, as well as the brands of any products they own. Other intangible assets include goodwill, accounts receivable, prepaid services, people, patents, trademarks, designs, and trade secrets.
Tangible assets are usually easier to liquidate because it is easier to transfer ownership of physical items for cash. Intangible assets are often transferred through their legal protection mechanism. You cannot sell a piece of engineering, but you can sell a patent or license its use.
Brands are intangible assets that are regularly bought, sold, and licensed. Nestle sold the Hagen-Dazs brand (along with other business assets) to PAI ventures for $4 billion. Starbucks licenses their brand to Pepsico so they can make and distribute the Doubleshot Energy+Coffee energy drinks, as we discussed in our article about brand extensions right here on BMB.
Tangible assets usually have greater short term value because they can be used up. For example, a tank of gasoline has no value once it is burnt. Intangible assets often maintain their value or ger more valuable with use. For example, the code used to make an app can be used repeatedly with no degradation; with use, the code might get even more valuable because engineers can find and fix bugs.
As an intangible asset, brands maintain and grow their value through their use. A brand is just as valuable no matter how many times its logo is displayed alongside a product. It because more valuable because brand recognition increases. Brand loyalty increases, and brand associations are built, assuming it’s a good product or service.
Note that specific uses of a brand diminish its value. This phenomenon is called brand dilution, which we have covered in detail here on BMB.
Can brand expenses be capitalized?
Only certain expenses relating to building a brand can be capitalized while adhering to GAAP.
If brand is an intangible asset, then it begs the question: can expenses related to brand building be capitalized? If a brand is an asset with long-term value, then it would make sense to spread the costs over the years.
What does it mean to capitalize an expense? Capitalizing an expense means delaying the full cost of an expense on the balance sheet to calculate profit or loss.
For example, if a factory buys a machine, then it makes no sense to have the cost of the machine tank one quarter’s balance sheet and not be recognized as a cost on all subsequent accounting. The investment in the machine with bear fruit over time, so we need to spread the machine’s price over time if we want to truly determine if it was a good investment.
Brand, because it is an intangible asset, is similar to a machine. But, unfortunately, generally accepted accounting principles (GAAP) allow finance professionals to only capitalize some brand expenses and not others.
I am the furthest thing from an accountant, so I refer you BrandActive’s article: “Understanding the impact of CapEx/OpEx on rebranding budgets.“
In that article, author James Burn gives the example of signage for a facility. The costs associated with rebranding, reproducing, and reinstalling can be capitalized over the expected life of those signs, say ten years. There is a trade-off; if any sign is disposed of, then the remainder of its expense incurs when it is tossed.
But, other brand-building expenses cannot be capitalized. For example, fees from redesigning invoice templates, forms, and other documents have to be reported at the same time they are incurred.
Most importantly, expenses from a brand-building advertising campaign have to be reported at the time they are incurred if you adhere to GAAP. Advertising costs are never capitalized (to my understanding, again, I am not an accountant.)
It would be nice to run a brand campaign in Q1 while advertising rates are low, and spread the costs out all year as the increase in brand value bears fruit, but that is not acceptable for accountants and investors. C’est la vie!
Brand As Asset
Thinking of brands as assets has been one of the most powerful ideas in business.
I am going to try to convince you to start thinking about your company’s brand as an asset. This means that spending money and time building a brand is an investment that will return as a long-term increase in sales.
This is how sophisticated businesses, such as Proctor & Gamble, think about their brands. But so many businesses, especially startups and family-owned companies, do not appreciate the asset value of their brand and they never invest in it. Time and money spent on marketing are considered annoying distractions. As a result, their brand never really works for them.
Flipping your thinking on this topic will change the future of your business for the better.
Hypothetically: What if brands weren’t assets?
Then all marketing would need to result in short term sales increases.
Hypothetically, let’s say that branding is not an asset. In this imagines scenario, money spent on marketing does not accumulate into long term value. Design, marketing, and advertising should be treated as merely quarter to quarter expenses.
In that scenario, marketing campaigns are held to a much different standard. They need to immediately show returns; a campaign that did not raise revenue ten to twenty times their investment would be considered a failure.
In that world, marketing would continuously be pushing towards the sale. A customer needs to go to a website, pick up the phone, or head to the store immediately. Sales gimmicks and discounting would be the norm. There would be no aesthetics to brands; designs would feature whatever garnered attention customers, even if it’s neon green. The customer’s experience after the sale wouldn’t matter.
If you are interested in this contrast, I made this point in my article contrasting brand marketing with direct response marketing here on BMB.
But this is not the case. You only have to look around for a minute to see that the companies that treat their brands as assets are the ones with effective marketing.
Brand as Asset Model
If you treat a brand as an asset, then it changes marketing from a cost to an investment.
The brand as asset model is a mode of thinking that helps business managers make decisions by treating brands as assets. Like any business asset, brands can be invested in, store value, and be leveraged for future success.
If executives treat brands as assets, then it changes the way they use and invests in them.
- Brand equity is part of shareholder value: It becomes a business manager’s obligation to shareholders to maintain the brand’s value through design, innovation, and advertising. A company’s brand and brands they own equate to about ten to thirty percent of the business’s total value.
- Brand assets must be leveraged through strategy: Executives should outlay a strategy and plan so that employees can leverage and grow the brand’s value through design, marketing, sales, and customer service.
- A strong brand has a high return on investment: Business people should understand that proper management and leverage of a brand is one of the few ways to increase profitability.
- An inconsistent brand wastes resources. Building the value of a brand presumes that it is one cohesive concept. Organizations can work against each other if they are not consistent about how they portray their brand. For example, if one team is building the brand as “premium,” and another group is communicating that it as “a budget option,” then the net result is worse than if either one of those options was pursued individually.
Most executives and business owners implicitly understand that their brands are assets, but many acts and make decisions that favor other assets at the expense of their brand. Such leaders end up deteriorating the brand, and a crisis emerges when the brand no longer works as it once did.
For example, I consulted for a nationally-recognized Canadian food company who was told by their biggest retailer that they had not invested in that brand in 15 years. Moreover, their retail partner threatened to remove their listings if they did not do some long-needed maintenance of their brand in the form of innovation, design, and advertising.
Partners recognizing brand depreciation is a common occurrence. My client was exceptionally lucky that one of their retail partners was willing to provide feedback and allow them to correct the mistake. Most companies who neglect their brand see a slow decline in sales and margin, and eventually get dropped by their retailers.
Embracing the brand as asset model is often the difference between mediocre business managers and sophisticated executives. I hope you are savvy and embrace this model.
For another take on how treating brand as an asset affects, read David Aaker’s blog post on the Prophet.
There, he makes five points. If brands are assets, then:
- Brands are strategic and visionary.
- Brands should be managed by top executives.
- Executives are charged with building brand assets.
- Companies are in the business of leveraging brand assets.
- Organizations need to carefully manage the brand portfolio.
- Leaders need to address organizational silo issues.
Brand Equity is the monetary value of a brand.
If brands are assets, then an accountant should be able to assign a monetary value to it like other assets. If it is an asset, then it can be sold. And if it can be sold, then it must have a price. That price is brand equity.
Brand equity, also known as brand value, is the financial value that can be assigned to a brand. For example, the BMW brand is worth 41.6 billion dollars, according to Interbrand.
Measuring brand equity is possible but imprecise. The number cannot be used as a reliable gauge of the effectiveness of brand building activities. It is not a number that is reported in the financial disclosures of publically traded companies. Some investors use third-party estimates of brand value to make investment decisions.
The value of measuring brand equity is for budgeting decisions. If brand equity is 10% of a company’s value (as it might be for a mining company), then it requires far less of the budget than a company whose brands are 40% of their company’s value (such as a company like Proctor & Gamble.)
Companies with more significant brand values are going to need more money to make a meaningful difference in increasing brand value. Spending $1 million on a branding campaign is going to increase significantly the value of a medium-sized company with a $10 million brand, but is going to be a drop in the bucket for a corporation with a brand that is worth $10 billion.
To learn more, read our article on Brand Equity right here on BMB.
“Brand As Asset” vs. “Brand Assets”
Brand as Asset is a way of thinking. Brand Assets are your logo, tagline, colors, photography, etc.
Brand as Asset is not something that you can hold in your hand or store on a computer drive. It is a model, a way of thinking.
On the other hand, brand assets are items and data that need to be managed by a brand manager. Brand assets are the unique aspects of your brand that distinguish you from your competition.
Brand assets include:
- Brand Name
- Product Photography
- Lifestyle Photography (Models)
- Product Packaging
- Audio – Music and Sounds
- Brand Voice
- Working Files of Previous Designs
Brand Asset Management Software
Making it easier for brand managers to send brand assets to those who need them.
Brand managers spend a lot of their time making sure different people, and partner companies have the brand assets they need to work on the brand. They have to send a logo, transfer files, walkthrough brand standards, etc.
To lessen the burden on brand managers, many companies make brand asset management software. This software is a secured database with a web interface so that designers can log in and download what they need to get a design job completed.
I have used some of these systems as a designer looking for brand assets, not evaluated all the options so I won’t make a recommendation. I will refer you to the digital asset management software category on Capterra, the B2B business software review site. Just make sure you sort the options by “Highest Rated” instead of “Sponsored.”
Other Types of Intangible Assets
The value of the brand is captured in other intangible assets, like trademarks, copyrights, and goodwill.
Intangible assets, other than brands, are:
Contract rights are the valuable terms of agreements that were negotiated with other organizations or individuals. Rights that have exceptional value are exclusive importing rights, exclusive influencer endorsements, mining contracts, exclusive contracts with retailers, etc.
A copyrighted work is an original piece of art (writing, design, video, etc.) that cannot be copied without a license. Copyrights are the weakest form of legal protection, but still, protect the value of exceptionally creative work product.
Membership / CRM Databases
A list of customers and their contact information, usually in the form of a list of users or a customer relationship management database, is a valuable tool for a business to find returning customers. A customer list that is easily activated, i.e., can be marketed to and results in sales, signifies a valuable brand.
Goodwill is all the value above the total assets valued at a fair price. In other words, if the value of all the priced assets is totaled, but the value of the company is yet higher, then goodwill is the difference. The value of the brand is captured in goodwill.
If a company has a license to do business in a highly regulated industry, like banking or gambling, then those licenses have value. Exclusive licenses of brands fit in this category; for example, Nike having an exclusive license to use Michael Jordan’s name to market Air Jordans basketball shoes.
Patents grant a company the exclusive rights to use a piece of technology they developed in a product or license that technology to another person. A patent legally protects a company from having the technology in their product used by a competitor. Patents have value because they may make a product a cut above the competition for the duration of the patent.
Research and Development Pipeline
Any new products or innovations that are in development but have no been released are critical to the business’s future success and thus have value. Famously, the US government looked under the hood and evaluated Ford, General Motors, and Crysler in 2008 when the companies were seeking bailouts amid the 2008 financial crisis. The government found that Chrysler had so little innovation in the pipeline that it would not be viable on its own for much longer. The US government recommended they merge with Fiat, which they did.
Trademarks are legally protected names, phrases, and symbols. If a brand is valuable, then the trademarks associated with it (brand name, logo, and tag line) carry value because the right to put it on a product will sell more of that product. See our article on TMs in Logos for more information.
Anything crucial to the success of a product that can only be protected by being hidden from the competitors is a trade secret. The recipe for Coca-Cola and the “21 Herbs and Spices” in Kentucky Fried Chicken are famous trade secrets.
Conclusion: Thinking of your brand as an asset forces you to level up.
You and your organization have to be more serious and talented brand builders.
Most small and medium-sized companies that stagnate are the ones who treat their brand as a distraction from operations. They push it off to an external organization or delegate it to someone at the mid-level to keep up with the day-to-day tasks related to a website, social media, and marketing collateral.
The companies that excel think about their brand from day one. These brands become assets, and options like franchising, licensing, and co-promotions open up. They treat their brand as something valuable and important, so it becomes something valuable and important.
Where on this spectrum do you sit? Are you treating your brand as an inconvenient distraction? Or are you integrating it into the discussions about all other business functions?
Please do not misinterpret me. I am not advocating to treat the brand as the most important part of a company. I do not want to see you waste money with brand-building advertising that is not appropriate and will be lost.
Instead, I want you to elevate the brand to something as important as anything. Every business decision needs to answer: will this increase the value of the brand? Anything less than an enthusiastic yes, and the program should be killed.
The brand should be considered in every high-level discussion. A meeting to think about and discuss the brand should be on the executive’s or owner’s calendar regularly. The brand and growing its value should be on the mind of shareholders, and a topic for discussion at board meetings.
Good luck growing your asset, and please let me know the results. Comment here or contact me.