Apple bank? Amazon loans? Google deposits? It’s coming

Business

INVESTMENT ANALYSIS

Apple bank? Amazon loans? Google deposits? It’s coming

Why consumers will follow strong brands, even when they venture into new territory ... which they are

Chris Gilmour

Consumers love brands. Brands make a promise as to the quality and integrity of the underlying product and hence brand value is something to be proud of – something that, with judicious care, grows over time. Strong brands engender customer loyalty, attract good people to work for them, and ultimately help companies to be very profitable.The global banking industry has changed beyond recognition in recent years. Today the top three banking brands globally are Chinese, before which this accolade was worn by US banks. Additionally, many other highly-branded companies such as Apple, Amazon and Google have either started operating in the banking arena or have signaled their intention to do so. Thus the global banking space is likely to look very different in 10 years’ time to what it looks like now. History shows that consumers will follow strong brands, even when they venture into seemingly new territory, such is their strength and loyalty.
Brand Finance recently unveiled its “South Africa 50” for 2018, an annual ranking of the most valuable brands. Once again MTN is South Africa’s most valuable brand, while Capitec is the country’s strongest brand.Brand Finance is a brand valuation and strategy consultancy headed in SA by Jeremy Sampson. The rankings unveiling, in conjunction with Brand SA, was held at the Nelson Mandela Foundation in Houghton, coinciding with the 100th birthday of Nelson Mandela, the greatest brand SA has ever had.
“Brands are country ambassadors,” says Sampson, citing what happened to Finland when its most iconic brand, Nokia, dramatically fell from grace some years ago. The country has languished in line with Nokia ever since.Declan Ahern from Brand Finance’s head office in London points out that the top 10 global brands, taken as a collective, have outperformed the S&P500 during the past 10 years. In fact, investing in highly-branded companies led to a return almost double that of the average for the S&P500 in the past decade. This makes highly-branded companies attractive not only to investors but also to lenders, as these companies tend to enjoy lower borrowing costs than their lesser-branded competitors.MTN, SA’s most valuable brand, has a brand value of R44.2-billion, up from 2017’s R40.8-billion. Number two Vodacom is a long way behind at R27.4-billion, though its value jumped by 13% from the previous year.Positions three, four and five are taken by FNB, Absa and Standard Bank. FNB’s value rose by 22%, Absa’s stayed pretty much the same, and Standard Bank’s brand value dropped by 11% compared with the previous year. Investec at number eight and Nedbank at nine complete the traditional banking lineup.
Woolworths maintained its sixth-place ranking, Sasol maintained seventh and MultiChoice remained in tenth position.
The Brand Finance methodology calculates brand value using a “Royalty Relief” approach. This involves estimating likely future revenues attributable to a brand by calculating a royalty rate that would be charged for its use, arriving at a brand value understood as a real economic benefit that a licensor would derive by licensing the brand in the open market. Brand Finance calculates over 17, 000 valuations in 35 countries and 42 industries and over 200 South African brands are valued.Another bank, Capitec, was rated as SA’s strongest brand based on factors such as marketing investment, familiarity, loyalty, staff satisfaction and corporate reputation. Combined with the level of revenues, brand strength is a critical driver of brand value. This is especially important in Capitec’s case, as the company was the subject of a short-selling campaign earlier this year by Viceroy, a short-seller based in New York. According to Capitec, the day the Viceroy report was released the bank experienced its largest one-day increase in new customers. This speaks volumes about the strength of the brand, especially in the eyes of new and existing customers.
Chris Gilmour is an investment analyst.

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