Brand investment matters to the City, reveals new IPA/Brand Finance survey

Analysts reveal positive perceptions of value of marketing

The new IPA/Brand Finance Investment Analyst Survey, which was completed by over 200 financial analysts who cover publicly listed companies in the United States and United Kingdom, reveals that "Strength of brand/marketing" is the factor most frequently cited by analysts (at 79%) when asked how they appraise and analyse the companies they cover. This is cited ahead of leadership quality (76%) and technological innovation (72%).

Further positive findings reveal that more analysts perceive advertising as an investment (37%) than a cost (24%). While 38% state it is a mixture of both.

Building on this, according to the findings, the analysts who examine Advertising and Promotions are significantly more likely to believe marketing is an investment and that it drives organic growth.

Need for education still critical

Despite the positive perception in some areas, the results show a seeming lack of understanding of marketing in other areas. For example, Marketing was seen as contributing most to "profit margins" (77%) and "sales volume (71%) - but less in areas such as "sales price" ie premium generated (54%) and "share price". (44%).

This is contrary to current evidence that Ian Whittaker has analysed from some major global brands, which shows how strong brands managed to retain volume share despite price increases.

In addition, when asked for their reactions if one of the companies they analysed announced a marketing spend cut, only 36% of analysts felt it was a 'short-term fix with long-term negative consequences' compared to over half (52%) who said they saw it as a ‘positive cost-saving measure’

Analysts show support for changing 'accounting treatment' of marketing spend

When asked whether they thought marketing spend should be treated like Technology R&D, where it is capitalised, nearly 90% of analysts said they believe marketing spend should be placed in capital expenditure either all (56%) or part of the time (33%).

Two-thirds of analysts (67%) also want to see changes to how intangible assets as a whole are reported upon and accounted for.

Those that stated they think it should be capitalised at least some of the time believe it would improve their ability to value the company and give them better understanding of future growth potential.

Recommendations going forward

Further to his analysis of the findings, Ian Whittaker, a former City analyst and Founder and Managing Director, Liberty Sky Advisors, will share his conclusions and recommendations that he will expand upon in an upcoming IPA report. These include:

• Marketers need to make the argument that marketing is more an investment, than a cost.
• Analysts show support for this view and would prefer a change in the accounting treatment to reflect marketing’s investment nature.
• Analysts believe that brand strength is critical to a firm’s success even if the accounting treatment encourages a more short-term mentality.
• The investment community is now looking for more information on marketing spend. This engagement improves perception of that spend. Brand owners should be encouraged to disclose this.
• The marketing industry needs to educate analysts on the link between marketing and price premium and other value levers, particularly long term.
• Crucially, the last 18 months has given a real-life, unplanned experiment showing how brand strength has proved crucial to both growing firms’ top-line and protecting their earnings.

Says Laurence Green, Director of Effectiveness, IPA: "To facilitate this and to improve understanding, it is incumbent on brand owners to provide the relevant data and evidence to investors, and to engage with them using their language in order to make the most compelling case for marketing as a long-term investment."

Says Annie Brown, General Manager, Brand Finance: "When companies spend money to change the way people see their brand, they are not doing it for a one-off result. They do it to build up the long-term value of their brand asset."