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Clear Thoughts
Corporate Branding
Originally Published Friday, February 11, 2005
| The hype around Super bowl commercials and the enormous amount of people the commercials reach help advertisers increase recognition of their brands. Brand recognition is an important factor when determining a companies? future growth. How does strong brand recognition impact the market? |
Now that it is all over, we would like to Monday morning quarterback Super Bowl ads. Why, you may ask? Because the advertisements you see on television are aimed not just at the American consumer, but they are also targeting investors, at least indirectly if not directly.
Successful advertising builds brand awareness, and it is a well-known fact that a good brand name can have immense value for a company. A strong brand is often reflected in a company's price to earnings (PE) ratio. Higher PE ratios are awarded to companies that investors believe have better growth prospects, and brand recognition is a factor that enhances companies' future success, at times significantly.
Consider the case of Apple, a company whose iPod has had tremendous success and growth as a product. Their advertising campaign is seemingly ubiquitous: in print, on TV, online, and even on the sides of the buses here in New York City. In their case, the campaign has worked remarkably well, as Apple was rated the number one brand in the readers' choice survey of online magazine broadchannel.com. Apple has reaped the rewards of this recognition, including a PE ratio over 60 and profit growth of over 200% in the past year.
Now that we have established the impact that brand can have on a company, let's return to the Super Bowl ads. First of all, let's state their purpose: to win the hearts, minds and wallets of the largest audience of the year.
In today's world, most marketers talk about targeting, customer segmentation and measuring their return on investment (ROI). In fact, the majority of product managers at large consumer companies are MBAs that are more at home with their large spread sheets than the concept of a Super Bowl ad. Well, one doesn't need to perform a market study to know that large audiences aren't focused. But there are other reasons to advertise on the Super Bowl, and we feel that is the case.
The first reason for putting out ads on this largest of stages is quite straightforward: Hype. Starting weeks before the game itself, the press was covering the commercials almost as much as the athletes. Perhaps the media wants the advertisers to get their moneys worth?
Now that the game is over, you can find all the ads to watch again and again all over the Web. When digital video recording company TiVo announced the top ten "rewound moments" from the game, number one was a commercial. In addition, we have seen reviews and polls of favorite commercials in many of the highly-focused investing press we read. This means that the hype doesn't just hit the average consumer, but it is also reaching the money managers that can make a big impact on stock prices.
The other important reason for advertising at the Super Bowl is also simple in theory and relates to the Hype factor: Reach. As we mentioned above, the better the brand, the potentially higher it's stock's PE ratio can be. We believe that if a commercial is reaching millions of people, at least some of the company's aim is to enhance their stock price. Most money managers are human (well, except for our computers and a few other notable exceptions). They laugh, feel sad, get embarrassed and get pumped when seeing firms they invest in on TV. Now think of the Super Bowl and how many institutional managers it is reaching. Add individual investors seeing the advertisements, traders and brokers and then add the press joining in with its coverage and the reach gets broader.
Of course some of the Super Bowl ads were successful, and some were failures. Whether intended or not, each of the companies' messages being advertised have made a mark on Wall Street already. But we will wait and see the long-term effect, if any, on company fundamentals as the advertisements affect their brand recognition, and we will share our results with you throughout the off season, training camp, and the next football season.
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