The unprecedented boom in world financial markets over the past few years, and the corresponding euphoria in our own, still young, stock market (particularly as evidenced during 1999) brought focus on the topic of company value. It is by now well accepted that successful companies have a value which is far in excess of their material asset value, a fact that is at least partly attributed to non-financial factors. Indeed, according to one study, roughly 40% of the market's valuation of Fortune 500 manufacturing companies is not represented in the balance sheet, while for high tech companies, this is estimated to be over 50%.
Brand equity, which tends to be a function of committed users and strong marketing support for a brand (good distribution, above-the-line advertising, etc), is fundamental to a company's business success in that it enables it to enjoy a sustainable competitive advantage. Brand equity does not just happen: it is created over time through systematic brand building efforts that make the brand relevant to the customer's needs and aspirations. Once psychologically attached to a brand, users tend to be less price sensitive, pay less attention to competitive offerings and act as strong advocates for the brand (by recommending it to others) - in other words their commitment positively affects the bottom line by greatly enhancing the value of the companies that own the brand. By Dr. Nicos Rossides is Managing Director of MEMRB International