Why should CFOs care about branding?
Branding is often seen as a domain exclusively managed by the CMO, a creative initiative with little direct impact on the financial side of the business. This perception, however, is rapidly becoming obsolete.
For CFOs, understanding the financial potential of a strong brand can no longer be an afterthought—it must be integrated into the broader financial strategy as a key driver of long-term growth and financial stability.
In many companies, branding expenditures are categorized as operating expenses (opex), positioning them as short-term costs to minimize rather than strategic investments to cultivate.
This accounting approach significantly undervalues branding’s long-term contribution to a company’s financial health.
Unlike traditional opex, which covers day-to-day operational costs, branding generates brand equity, an asset that appreciates over time, much like a capital investment.
Consider the example of Starbucks. The company did not view its brand investments as costs to cut but rather as a means to foster deep customer loyalty. Starbucks’ long-term investment in values such as sustainability and ethical sourcing helped it build a powerful brand identity that protects it from competitors, allowing it to charge premium prices and maintain customer loyalty.
This example highlights the immense potential of branding to serve as a financial moat, protecting the business from market fluctuations and competitive pressures.
Branding should be reclassified as capital expenditure (capex), just like investments in machinery, technology, or real estate.
In much the same way that a new manufacturing facility can provide value over several years, a strong brand can create long-term customer loyalty, reduce price sensitivity, and lower customer acquisition costs.
These benefits translate directly into sustained revenue streams, an essential consideration for CFOs evaluating ROI on capital expenditures.
Furthermore, reclassifying branding expenses as capex stabilizes earnings reports by amortizing these costs over several years.
This shift helps smooth out financial volatility and can improve credit ratings, ultimately reducing the cost of capital.
By treating branding as a long-term investment, CFOs present a more accurate picture of the company’s financial health, fostering investor confidence and paving the way for sustainable growth.
Starbucks’ branding strategy serves as a powerful example of how strategic brand investments can pay off in spades.
When growth slowed in the early 2000s, Starbucks did not opt for short-term cost cuts or superficial marketing efforts. Instead, the company doubled down on sustainability, community engagement, and ethical sourcing.
These initiatives, though not immediately sales-driven, played a crucial role in building a brand that customers trust and identify with.
Today, Starbucks’ brand is a competitive advantage that allows the company to retain its market position and pricing power, even as competitors flood the market with similar offerings.
Many companies still treat branding as a series of short-term activities designed to drive immediate metrics such as video views or click-through rates. While these may be measurable, they fail to contribute to the creation of lasting brand equity.
Branding efforts that focus only on immediate KPIs without considering long-term value creation are akin to placing cash into a vending machine, offering a temporary return but failing to build meaningful, differentiated brand recognition.
CFOs should be cautious of short-term branding strategies that prioritize immediate results over lasting brand value.
Building brand equity requires a deep understanding of customer values, creating trust over time, and positioning the company to win customer loyalty first and their business second.
Moving branding from opex to capex is not just a creative shift but a strategic necessity. By doing so, CFOs can ensure that branding becomes an integral part of the company’s long-term growth plan, aligning financial goals with the creation of lasting brand equity.
To start, CFOs should collaborate with the CEO and CMO to align on brand objectives and create a three-year plan that clearly defines how the company will build brand strength.
A dedicated “capex” budget should be earmarked for brand-building initiatives, separate from the marketing budget.
It’s important to establish specific, measurable KPIs, such as brand search queries or direct website traffic, that can track brand progress over time.
Regular reviews of these metrics will ensure that the brand-building efforts stay on track and evolve with market conditions, fostering financial resilience and competitive strength.