Marketing impact on company value bounces back

Marketing is once again being rewarded by investors in top UK companies following a period of spending cuts and retrenchment, according to a report.

Shell
Shell tops the list of FTSE 100 companies which can attribute the largest proportions of their market value to reputational factors

The report, by Reputation Dividend and Pendomer Communications, shows that investment in marketing and innovation and ability to attract talent were valued by investors in 2011, after falling out of favour during more uncertain times in 2010.

The report uses statistical regression analysis of a range of publicly available company financial and survey data to show the relative impact of a range of factors that impact corporate reputation.

The impact of the quality of marketing returned to 2009 levels in 2011, after having zero impact in 2010 against other measures that affect reputation in the midst of the downturn.

In contrast, the quality of management and the quality of goods and services impact on reputation and market value fell last year.

The authors of the report say the 2011 data highlights a “very important shift” in the drivers of reputation from financial in the “depths of the downturn” in 2010 to quality of marketing, capacity to innovate and ability to attract and retain talent in 2011 “demonstrating the changing risk appetite of investors as they reward those companies that are investing for growth now, ahead of the recovery curve.”

Corporate reputation accounted for £520bn of market value across the FTSE 350 at the start of 2012, an increase of 18% over 2011 (£440bn), and versus a 3% decline in the overall market value of the FTSE 350.

Factors that impact on reputation rose by 9% in overall contribution to the market values of FTSE 100 companies to 33% in 2011.

Shell (pictured), Diageo and Unilever top the list of FTSE 100 companies which can attribute the largest proportions of their market value to reputational factors.

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Companies which make the report’s top achievers of reputation value also include Vodafone, Tesco, Rolls Royce and BSkyB.

The report is based on a model that uses company data, city estimates and survey-based reputation data to calculate the value of reputation as a percentage of a company’s market capitalisation.

It clearly shows how reputation has “offset” deterioration in earnings and “protected” the value of corporate brands in recent challenging times.

Reputation Dividend chief Simon Cole said FTSE 100 brands which tended to have established brands before the downturn were the real beneficiaries:

“The financial values of corporate reputation across the FTSE 100 have continued to grow through the downturn, driven by investors’ flight to safety, which is heavily influenced by reputation, and also by better reputation management,” he says.

“In contrast FTSE 250s initially struggled to maintain the economic contribution of their reputations but are now beginning to recover lost ground, he added.

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