According to data compiled in the book, The Brand Bubble, worldwide brands are now so “overvalued by the financial markets in comparison with their worth in the minds of consumers that if [the brand] bubble bursts, it could erase large portions of intangible value in firms and send a shock wave through the global economy.”
Traditional valuation of a company is based primarily on tangible assets. In recent years, the trend to include a larger percent of intangible assets in valuation shifted especially as consumer and sponsorship interests in brands began to flourish. The entertainment industry, the media and business’ need for revenue had a lot to do with the increase of brand awareness and brand popularity and, therefore, heightened brand valuation. Unfortunately for many, none of the brand hype equated to customer loyalty. When economic storms hit, customers abandoned the market place in mass.
Prior to the Wall Street debacle everything financial (including the housing supply, loans, and employment) was based on future return on investment and/or future cash flows. The problem with valuating a large portion of any company by intangible assets is that executives tend to pad current value as well as overestimate future cash flows.
Like the housing market, brand valuations, stock portfolios and other investments were overrated in line with hype. Unable to foresee that customers would give out under the weight of higher prices coupled with unexpected circumstances, businesses that failed to prepare for economic drought fell hard and fast as did business whose brand value was greater than brand loyalty.
Now that reality has set in, companies are back to doing business as usual: scrupulously. Unfortunately, over padding has led to what appears to be a tremendous loss. In actuality, brand values have simply normalized in the sense that companies now have to back numbers with hard facts.
Lessons to live by? What motivates a customer to act is one of two things: need or want. Instead of attempting to time consumers as one would the market or to bait customers based on hype, business owners should follow proven advise:
1. Be both genuine and relevant in your marketing approaches
2. Put all eggs in several baskets
3. Investment in safe vehicles that will help hedge against loss while guaranteeing gain
4. Save (have large cash reserves)
5. Keep liabilities to a minimum to include eliminating unnecessary debt
6. Plan for the short haul but live for the long term
Marketing Strategies that Build Value
Get Back to Basics. Win Back the Trust.
Hidden ‘Brand Bubble’ Threatens to Burst, Warn AnalystsWhen Marketers Put the Cart Before the Horse