Strength of brand and marketing is one of the key lenses through which analysts appraise businesses performance.

According to the IPA/Brand Finance survey, which will be unveiled at the IPA Eff Works Conference today, ‘strength of brand/marketing’ is the factor most frequently cited by analysts (at 79%) when asked how they appraise and analyse businesses. 

Strength of brand/marketing even ranks ahead of reported profit (71%) when it comes to appraising and analysing a company. Leadership quality came in second at 76% followed by Technological innovation. While sustainability (ESG) and employee experience also rank highly at 63% and 62% respectively.

The research from the IPA and Brand Finance, features analysis by Ian Whittaker, a former City analyst and Founder and Managing Director of Liberty Sky Advisors. Completed by over 200 financial analysts who cover publicly listed companies in the UK and the US.

Marketing as an investment rather than a cost

The research also reveals that more analysts view advertising as an investment (37%), rather 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. 

Yet despite these positive indicators, the research underlines when it comes to making the business case for marketing the need for education is still critical. Despite these positive indicators, the research underlines a lack of understanding of marketing in other areas. 

For example, Marketing was seen as contributing most to “profit margins” (77%) and “sales volume” (71%). However, just over half (54%) see marketing contributing to ‘sales price’, reflecting a lack of understanding of the role of marketing in driving forward price premiums. 

This is demonstrated in data 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 how marketing spend is accounted for. When asked whether they thought marketing spend should be treated like technology and research and development, 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%). While 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 a better understanding of future growth potential. 

Laurence Green, Director of Effectiveness at the IPA, explained: “This survey provides welcome news that investors are placing increasing interest and importance on investment in brands. 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.”

Annie Brown, General Manager of Brand Finance, added: "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. Therefore, advertising spend should in most cases be considered an investment for future growth, not just a cost for delivering immediate business.”

The case for a new approach to measurement

Seperately at Eff Works today (Tuesday 10th October)  Les Binet, global head of effectiveness at ad agency Adam&EveDDB, released new research underlining the importance of Econometrics. In Econometrics and the C-suite – evidence-based decision-making for business, Binet argues rising inflation rates and growing ‘disenchantment’ with digital evaluation techniques are two factors behind why econometrics is increasingly relevant for CMOs.

He writes: “Rising inflation means analysing the impact of price is firmly back on the marketing agenda. Econometrics is the perfect tool for this new environment, allowing you to measure set prices and fine tune marketing plans to maximise profit. No other research tool can do those jobs as effectively.”