Brand valuation was one of the “chapters” in my presentation to the Thunderbird MBA students yesterday so I took the opportunity to revisit the analysis of the 2011 brand value league tables from Brand Finance, Interbrand and Millward Brown, plus the new kid on the block – the European Brand Institute.
The picture is not a pretty one if you are hoping for convergence in the estimates of the value of brand value between these four providers. First of all, only 9 brands are common between the four top 30 lists. And only 28 brands make it onto all four top 100 lists. The aggregate value of those 28 common brands ranges from a low of $595 billion (Brand Finance) to a high of $1,040 billion (Millward Brown) – a difference of 75%.
At the individual brand level, the differences in the valuations are even more pronounced – the minimum and maximum values differ by a factor of more than 5 for Apple; more than 4 for Shell; more than 3 McDonald’s and Nissan; and more than 2 for Google, IBM, Coca-Cola, Intel, Amazon, UPS, HSBC, Cisco, Nokia and Citibank.
This is a depressing result given that each of the agencies enjoys high standing in the market, and uses a reputable methodology for arriving at their estimates of brand value. It is important to realize that the divergences in their estimate of brand value are not due to technical factors – they reflect differences in their assumptions about the relative importance of brands in generating future cash flow. In other words, the differences illustrate how highly subjective the practice of brand valuation is currently.
This means that using brand valuation for the purposes of demonstrating marketing accountability is a fool’s errand.
It is ill-conceived for two reasons:
- First, it produces a number that no-one can justify
- Second, it leads to a dysfunctional situation in which marketers try to lay exclusive claim to a certain proportion of the value of the business. This flies in the face of the reality that marketing is about leveraging the other assets of the business to present a compelling offer in the market place
A much more productive approach to demonstrating the economic significance of brands is to show how they accelerate and magnify the cash flows that the business would otherwise generate. In other words, the focus should be on overall business valuation, not just brand valuation.
