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‘Future brands’ outperform the Top 100 by market capitalization

New trend information in 2016 reveals the companies that have consistently qualified as ‘future brands’ year on year have a higher average market capitalization than the Top 100 companies overall. These companies include Apple, Facebook, Intel, Microsoft, Inditex, Walt Disney, AbbVie, Johnson & Johnson, Samsung and Toyota.

The average market capitalization across the entire Top 100 companies increased between 2014 and 2015 (from $151bn to $162bn) but then fell slightly this year to $159bn. Importantly, the average market capitalization of these ‘future brands’ was higher each year, and actually grew by a greater proportion between 2014 and 2015 (from $208bn to $252bn – by 21% compared to the average Top 100 increase of 7%, a difference of 14%).

Whilst our future brands average market cap remained steady at $252bn this year, the absolute difference to their peers increased (from $90bn to $93bn), meaning that they have also been insulated against an average market cap decline of 3% to date. 

This is further evidence that organizations which qualify as ‘future brands’ have a measurable competitive advantage over their peers, in addition to being seen to have desirable products, commanding a price premium and being an attractive place to work. So whilst market capitalization might not guarantee perception strength, strong perceptions correlate to better financial performance.

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The tide is rising - perception strength is increasing year on year

The average strength of perception across the Global Top 100 Companies has increased by 10% since 2014. This has also translated into more ‘future brands’ in the Index (from 22 to 24), and more ‘admired’ corporates (from 22 to 35). This suggests that people are feeling more positive towards the world’s largest organizations and perhaps indicates that we have seen the final correction to organizational reputation strength following the global financial crisis – in which large Oil and Gas and Financial Services organizations suffered from sector-wide perception difficulties that depressed averages overall.

Financial Services and Consumer Services organizations are enjoying joint-strongest increases this year – controversy around issues like corporate tax residency or employee remuneration for the largest global organizations does not seem to have hampered a 10% perception strength increase for firms like Amazon (up 26 places) and Walmart (up 23 places), or technology firms like Facebook (up 15 places). Telecommunications firms also seem to be enjoying increased perception strength after two years towards the bottom of the Index, with AT&T, Nippon Telegraph and NTT Docomo all classified as ‘more admired corporates’ this year, and upward movement for traditionally weak performers like Verizon (up 6 places). So whilst these organizations remain in the bottom fifty percent in terms of rankings, their absolute perception strength is on the rise.

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New names weaken perception strength, except within less well-perceived sectors

On August 10th 2015, Google announced the creation of Alphabet, a new holding company that would house the company’s activities beyond core Internet services. Google itself would be retained for search, apps, YouTube and Android and more future-focused entities like investments and research would shift to Alphabet. Importantly, Alphabet is now the organization listed in the Top 100 by market capitalization, rather than Google itself. This change presented an opportunity to understand the impact of corporate name change on global perception, so our research in 2016 deliberately included Google as well as Alphabet to allow us to make like-for-like comparisons between the entities. This unearthed some trends that confirm received wisdom about the impact of corporate brand separation.

Firstly, our data reveals that Google would have been at the top of the ranking by a significant margin for the third year in a row, ahead of Apple and the other organizations in the top 5. Alphabet does much less well, despite qualifying as a ‘future brand’ in 21st position. This is arguably a good result for an organization that was less than a year old at the time of research. However, when we compare their results, the shape of their perceptions is almost identical – indicating that Alphabet is seen as Google by another name. Not just that, but perceptions of Alphabet are weaker across every attribute. 

What seems clear from this is that Alphabet has successfully used Google’s strong perceptions to springboard into the public consciousness as a ‘name’, but that it has yet to create differentiated meaning as an organization in its own right. This always takes time, but is a reminder that Alphabet needs to be more than a holding company, and create its own strong associations around the activities migrated into it to enjoy the global perception strength of its subsidiary Google. If this does not happen, the creation of a new name will arguably dilute the powerful equity built up by Google, and raises the question about whether brand separation was the right strategy. After all, monolithic approaches do not seem to have harmed risers like Amazon, IBM, Nike and Facebook in 2016 despite similarly diverse business interests. 

The same is true for Actavis, which changed its name to Allergan following acquisition of the firm in June 2015. Allergan is down fifteen places this year, which is a more significant decline than the 5% perception dip for healthcare as a category in 2016. In contrast, firms that have merged and retained combined names have benefited from increased perception strength – Walgreens Boots Alliance is the second highest riser (up by 34 places), perhaps suggesting that perceptions of the merged business are greater than the sum of their parts. It will be interesting to see how new entrant Kraft Heinz performs in 2017 with that trend in mind. 

Compare this with Altria’s (16th) significant outperformance of Phillip Morris (98th) following the decision to separate the brands and distance Altria from associations with its category. This strategy seems to have paid dividends in terms of perception strength and indicates the value of brand separation when an organization is seeking to avoid sector perceptions for change or future growth. 

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Financial services enjoy a strong perception increase

In 2015, our research indicated a softening of public sentiment towards financial services organizations. Respondent feedback shifted from a general criticism and negative feeling to more neutral and constructive suggestions about what banks could do to deepen customer relationships around improved service and experience – hinting at the beginning of the end of depressed category perceptions following the global financial crisis.

Building on that momentum, financial services organizations have actually enjoyed a joint-highest overall perception strength increase of 10% this year. This is powered by some dramatic rises for Berkshire Hathaway (up 30 places) and China Life Insurance (up 19 places). 

However, the banks themselves are also benefiting from improved perception strength including sharp increases from China Construction Bank (up 23 places) and Royal Bank of Canada (up 15 places) and positive movement from historically weaker performers like Bank of America (up 12 places) and JP Morgan Chase & Co (up 5 places). 

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Chinese organizations continue to rise

In 2015, our research suggested that China was moving from symbol to reality, as Chinese global organizations shift from being ‘admired’ to feeling ‘closer’ in the minds of our respondents. This trend has continued in 2016 with overall perception strength of the ten Chinese organizations in the Index increasing by 8%. Perhaps also worth noting is the increase of ‘trust’ in these firms – up 39% between 2014 and 2016 (though there was small decline in trust between 2015 and 2016 of 3%).

Three of our sharpest risers this year are Chinese organizations (China Life, China Construction Bank and SINOPEC), and a third of our year-on-year rising companies are also Chinese (Petro China, ICBC and SINOPEC). Despite some small declines for Tencent and Bank of China, the overall trend continues upward for Chinese organizations.

However, if Alphabet’s performance in 2016 indicates the organization needs to build stronger meaning beyond its ‘separation’ from Google, Alibaba’s relatively small ranking increase (up 2 places to 73rd) hints that the firm has yet to convert the potential of its historic IPO into concrete perception strength across our dimensions. 

As we see the drivers of a ‘future brand’ increase for attributes relating to experience in 2016 – from resource management to ‘would like to work for’, seamlessness, consistency and ‘would buy from’ – and a slight decline for less tangible attributes like ‘purpose’ and ‘thought leadership’, Chinese organizations will need to redouble their efforts to demonstrate tangible connection to peoples’ lives outside China to maintain this upward momentum in perception strength.