AMMAN -- Valuing a company's brand name is a difficult task. It is usually calculated as the net present value of earnings that a specific brand is expected to generate in the future. Public companies in the US are now required to record the value of intangible assets -- such as brands -- on their balance sheet when they are acquired.
These would be reviewed annually to see if there is any impairment in their brand value. Some brands increase in value over time, and the practice of slowly writing off good will, as a charge against earning, is inapplicable.
The global branding consultancy, Interbrand, which issues yearly values for leading brands around the world, argues that brand value represents on the average around 60% of the company's stock market value. For example, Coca-Cola is ranked this year as the most valuable brand in the world with a brand value of $67 billion, accounting for around 57% of the company's market capitalization. It is followed by Microsoft at $61 billion, IBM at $53 billion, Disney at $27 billion, McDonald's at $25 billion, Nokia at $24 billion and Toyota at $23 billion. To bring the analogy home, a brand name is the difference between paying less than a dollar for a hamburger sandwich at a local outlet and paying two dollars at McDonald's for the equivalent food and still think it is cheap.
Increasingly Arab companies are showing greater interest in the value of creating recognizable brands for their products and services. It is only natural for investors in the stock markets of the region to direct capital to companies they are familiar with. It is precisely here where many listed companies fall short. The reason that only few of them have brand value to speak of is partially due to the fact that most of these companies do not produce consumer goods, where brands play a dominant role, but are engaged in the production of basic commodities and in the provision of services such as banking, insurance, telecom and others. Several companies still operate under conditions of monopoly or managed competition and hence are less in need for an established brand name.
Many listed companies in the region did not invest in building strong brand characteristics and opted to have their nationality dominating the names of their brands. Others used general themes in their names such as "Arab" "Gulf", "Khaleej", "National", "International", "Ahli", "Watani", "Commercial", that do not help establish unique brands. As a rule, the more identifiable the brand the stronger it is.
Nevertheless, there are several exceptions. The Jordan-based Nuqul Group with its recognizable "Fine" products has been a major branding success across the region. Aramex, Thuraya, Sohat, Orascom, Al-Marai, Tazej, Savola, etc., are examples of well-known brands across a wide geographical area. Unfortunately, most of these companies are still dominated by families and very few of them are listed on the local stock exchanges which makes it difficult to assess the effect of their brands on investors' demand.
Brands do not have to be products and services only, they can be people and countries as well. A few years back, no one would have thought of buying processed foods from Saudi Arabia. However, today, the Kingdom has been able, through professional food export control and promotional practices, to position itself solidly in the regional market. Another example is Korea where not so long ago the "Made in Korea" label meant something totally different from what it means today, with direct impact on the marketability of that country's products.
The spread of satellite television in the region has had a noticeable impact on shaping consumer behavior. Arab consumers have become more aware of what is available in the market place, and as such more brand conscious. TV advertisement and marketing campaigns helped develop an association between brands and the average consumer.
Branding also allows a company to better market its other products. The Big Company, for example, built on the credibility of its ballpoint pens to promote the sale of its razors. The resilience of a brand is also evident in the concept of supportive brands, an idea that has proven successful in the region. Local companies have developed supportive brands to confront competitors without altering price. "Smile" for example, is a less expensive brand of tissue paper than Fine introduced by Nuqul Group to combat the influx of new inexpensive brands to the market. Building a brand is a lengthy process and comes at high costs that will pay off mostly in the long run. With brands, perception is more important than reality. If a brand is made to look important or "cool", people would think it has to be pretty good and would like to be associated with it. Companies tend to create an emotional link with consumers through their brands, helping them to capture a larger market share.
--Henry T. Azzam is chief executive officer at Jordinvest.
Henry T. Azzam
© Arab News 2004
