Success in extending your business overseas is closely tied to the strength of your brand.

Brand strength versus share return expectations
Singaporean companies have been generally successful; but have yet to see the benefits and importance of branding. The limits of our small domestic market have made it necessary for companies operating in Singapore to branch overseas, thus making the creation of a strong brand increasingly important (21st-Century Perspectives On Global Brands, Brand Management, Vol. 12, 2005).

Given that corporate reputation is vastly less tangible than cash profits, more experts are now arguing that it is possible to quantify it and predict how it would affect share prices (What Price Reputation? Businessweek, July 9, 2007). In recent times, studies have shown that strong brands deliver 365 percent higher returns on investment than its weaker counterparts (McKinsey Brand Research & Compustat). Research also shows that heavily branded companies outperformed the rest of the FTSE 350 by between 15 percent and 20 percent over a 15-year period (Citibank & Interbrand, Financial Times, 1997).

Strong SGX listed brands yield more returns
Categorising the 552 active companies listed on the Singapore Exchange into 12 industries, we invited 100 respondents from the financial industry (fund managers, financial analysts, private bankers, etc.) and/or who are investment-savvy (i.e., have traded actively in stocks on the Singapore Exchange in the past one year to rank companies within each industry based on their brand strength). The result in terms of the strength of the positive association between perceived brand strength and share-returns expectation in the 12 industries is as follows:

1. Property/REITs
2. Retail/F&B
3. Environment
4. Healthcare
5. Hospitality
6. Multi-industry
7. Offshore & Marine
8. Finance
9. Manufacturing (Non-technology)
10. Services
11. Transport & logistics
12. Technology

We will now delve deeper into the top three industries with the strongest positive association.

There is a view that the property/REITs industry is hampered by significant bad will. This view begs the question, to what extent does a companies' brand strength affect the good will? From our findings, apparently quite a lot.

In recent years, the active property/REITs market in Singapore experienced high media coverage due to numerous en-bloc negotiation and burgeoning rent prices. It was also reported by Channel NewsAsia, that property investment sales in Singapore hit a record high in 2007. These have resulted in a high level of awareness amongst Singaporeans for companies in the property/ REITs industry. With people being familiar with these companies, it comes as no surprise that their perceived brand strength is closely tied to their share-returns expectation.

In the retail/food and beverage industry, the customer experience with the brand is direct. In a marketplace overflowing with retail/food and beverage companies, people come into close contact with these companies all the time. A McKinsey research study has shown that for retail companies that appear to be strong and well-leveraged brands, an average of five points was added to shareholder returns. In our own study, we found the correlation between perceived brand strength, and share-returns expectation to be high for retail companies as well.

Due to the high level of interaction between customers and retail/food and beverage brands, it is paramount that these companies establish a strong brand for themselves in the marketplace. Perception of retail/food and beverage brands extends beyond the storefront. A connection with customers based on trust and respect is vital in building brand strength as well.

Having a strong brand also brings about very tangible benefits to these companies. A study has shown that customers actually make more frequent visits, purchase more, or pay price premiums at the stores of brands they perceive to be strong.

Similar to the property/REITs industry, the environment industry has also been in the limelight in recent years. The Xinhua News Agency reported in July 2006, the Environment and Water Industry Development Council (EWI) under Singapore's Ministry of Environment and Water Resources, was set up to boost the growth of the industry by attracting more foreign players and growing local companies.

Formerly an industry that did not received much media coverage nor considered exciting, findings from this study shows that perceived brand strength of companies in business-to-business (B2B) industries cannot be disregarded. Typically we think that companies in B2B industries need to only focus on providing tangible benefits in order for their business to do well operationally and financially. With the changing business landscape, this is seemingly no longer the case. Especially in a B2B industry that is receiving an unprecedented interest from the government and accordingly, the media.

Branding for share-returns
While our findings do not reveal high correlations for all industries, the evidence do point to the fact that in most industries having better perceived brand strength generally do correlate to having a higher share-returns expectation. In short, if you want your company's stocks to generate a better performance, build up a strong brand for your company.

External factors which affect the industry are major determinants of companies' share-returns expectation. Since companies are unable to control these external market forces, they should build up their brand so that they can outperform their peers in good times and are able to remain resilient in troubled times.

In companies whose products are considered commoditised, their share-returns expectations are tied to various other factors such as corporate reputation, perceived quality and delivery of quality service. Work hard to maintain a lead in these factors. On the other hand, business-to-business companies selling products that are more commoditised need to strike a balance between branding and lead generation. Commoditised offerings are price-sensitive, and while products within this industry suffer from product parity, take a look at Intel and SKF and one will think that building perceptual differentiation may well be worth considering.

Methodology
In this study, we have defined a strong brand to be one with the ability to:
1. Create and maintain top-of-the-mind awareness in the market;
2. Be closely associated with a powerful idea or concept or word in the minds of its customers;
3. Create and maintain strong customer loyalty even in the face of stiff competition;
4. Command a price premium over its competitors

As for companies' share-returns expectation, we measured it by using their stock's price earnings ratio (P/E ratio). Defined simply, a stock's P/E ratio is the price investors are willing to pay per dollar of earnings generated by the company. For instance, a P/E ratio of 10 suggests that investors are willing to pay $10 for every $1 of earnings that the company generates.

Wilson Chew is principal consultant & CEO, StrategiCom. Audrey lim is a consultant for StrategiCom and Terence Wong is the senior vice president (research), DMG & Partners Securities.