Strong brands help lift share prices; Finding is evident in sectors with high levels of public awareness, such as property: Study
COMPANIES with strong brands not only reap benefits among customers but also perform better on the stock market, according to a ground-breaking study.
Those best able to reap the rewards of branding appeared to be sectors with a high level of public awareness or customer contact – property, retail, food and beverage and environment.
Financial research firm DMG & Partners Securities and branding specialist StrategiCom undertook the study, which was the first of its kind in Singapore.
They surveyed 60 locally listed companies across 12 industries, including finance, manufacturing, off-shore and marine, health care, technology and hospitality.
They looked at the companies’ earnings numbers over the past three years to determine what the logical valuations should be and then asked 100 financial industry professionals and investors to rank the companies’ brands.
The data was then cross-referenced with each firm’s actual share price to determine if there was a correlation between a company’s brand, its logical valuation and its actual stock market performance.
The result was that strong brands generally corresponded to higher stock market prices relative to firms with weaker brands.
And the sector a company is in also made a difference.
There was a higher correlation between brand and share price for companies in the property, retail, food and beverage and environment industries, while those in finance, manufacturing and technology showed little correlation.
StrategiCom consultant Audrey Lim said property and environment- related firms may have benefited from the high levels of media coverage and general awareness while those in the retail and food and beverage industries had a ‘high level of interaction between customers and brands’.
Manufacturing had little correlation since its products are ‘largely commoditised’ and are thus rather forgettable, said Ms Lim.
Meanwhile, companies in the technology sector – which showed the least correlation between brand and share price – never recovered fully from the dot.com bubble that burst in 2001, she added.
Ms Lim also cited the United States sub-prime crisis when explaining why banks showed little correlation between brand and share price, despite the financial sector’s heavy investment in marketing and branding.
The US sub-prime crisis had hit banks the hardest and sent their share prices crashing, a possible reason why this well-branded sector had relatively low valuations.
In fact, prior investment in branding may even explain why the hard- hit financial sector fared better in the survey than technology or manufacturing.
When the going is good, ‘companies with stronger brands outperform their peers’, said DMG senior vice-president for research Terence Wong.
In ‘turbulent and volatile financial market conditions such as the current one’, he said, companies with powerful brands ‘are able to remain resilient’.
From: The Straits Times (Singapore), April 1, 2008 Tuesday