Brand Valuation

Tempting though it is think of brand valuation as a “silver bullet” to the challenge of marketing accountability, brand valuation is generally a false trail for marketers to follow.

Brand Valuation Archives

Brand as a Multiplier

Brand Strategy Insider has redeemed itself!  After a recent post on intangible value that revealed a profound ignorance about how intangible value was calculated, BSI has returned to form with its latest post recounting a conversation with Denise Lee Yohn.  The post contains the related observations that:

  • Brand acts as a multiplier on the success of the business
  • The value of brand is contextual (and therefore volatile)

I could not agree more.  It has long been my belief that brands do not have an independent, objective value.  Their value derives from their business context and the degree to which they embody a set of functional and emotional attributes that appeal to a specific audience.  Their value is proportionate to their relevance and their distinctiveness.  Both of these dimensions are contextual (relevant to whom?  distinctive in relation to what?).

There are two basic disciplines in marketing:

  • Segmentation – defining the customers on whom you will focus
  • Value proposition – ensuring that you offer them compelling value

The power of a brand comes from successful alignment between the intrinsic reality of the underlying product/service and the functional and emotional preferences of the target audience.  The result is an offering with which customers self identify, and which enjoys a sales profile that is out of proportion to the intrinsic difference between the product and its closest competitor.  That is because the brand has magnified a difference of degree into a difference in kind.


2015 Brand Valuation Review Posted to Slideshare

I have just uploaded to Slideshare my comparison of the 2015 brand valuations of the top 100 brands published by Brand Finance, Millward Brown, Eurobrand and Interbrand.  You can see the deck here.

The overall picture is similar to that of previous years (here are the links to the same analysis I posted for the 2014 league tables and the 2013 league tables) in that more than 200 different brands appear across the four top 100 brands; only around 30 brands appear on all four lists; and only 10 brands appear in the top 30 of each list.

For 2015 these 10 “mega brands” are Apple, Google, Microsoft, Coca-Cola, IBM, Amazon, GE, Toyota, Facebook and Disney.   Based on the average of their values across the four lists, they represent over $700 billion in value, of which Apple alone accounts for 25% ($175 billion).

Samsung, McDonald’s, BMW and Intel do not make the cut in 2015:

  • Samsung is rated as the #2 most valuable brand in the world by Brand Finance but appears at #44 on the Millward Brown list with a value only 26% of the $82 billion brand value attributed to it by Brand Finance
  • McDonald’s is in the top 15 brands for Interbrand, Eurobrand and Millward Brown, but is only ranked in 37th place by Brand Finance
  • BMW makes the top 15 for Interbrand and Brand Finance but does not make the top 30 for either Eurobrand or Millward Brown
  • Intel makes the top 30 for Interbrand, Eurobrand and Brand Finance but is not even in the top 50 for Millward Brown

Given this inconsistency, my recommendation is that marketers be wary about how much trust they place in any one of the four lists, or in the values attributed to specific brands.  I do, however, believe that in aggregate these lists provide a helpful indication of how the economic importance of brands varies across different industries.  I therefore included as the final slide in the deck my calculation of the industry-specific proportion of enterprise value represented by brand value.  This provides an indication of the scale of impact that brand strategy can have in different industries and therefore, I believe, represents a better starting point for discussions about the business impact of marketing than do conversations about valuing brands as if they were standalone assets.



Comparison of the 2015 Brand Valuation League Tables

Recent weeks have seen the publication of the 2015 brand valuation league tables by Interbrand and Eurobrand, so it is time for T2’s annual comparison of how these league tables compare to one another and to those released earlier in the year by Millward Brown and Brand Finance.

Here are the headline findings:

  • The number of brands appearing in the four top 100 lists in 2015 was 203 (versus 209, 213, 215, and 213 in the previous four years)
  • The number of brands common to the four top 100 lists was 31 in 2015 (compared to 29, 28, 27 and 28 in the previous four years)
  • For these 31 common brands, the difference between the high and low valuations of the same brand averaged a multiple of 2.2 with the narrowest differential being in the value attributed to the J P Morgan brand (only a 20% difference across the four kists) and the largest being for Shell (Brand Finance’s valuation of the Shell brand is a staggering 5.6x the value that Interbrand calculates)
  • Fully 50% of the time, there is disagreement between the four consultancies about whether a specific brand increased or decreased in value versus 2014 (of the 28 brands that were common to all four lists for both 2015 and 2014, there was consensus on the direction of the change in value on only 14)
  • The top 30 list from each consultancy contains almost as many brands that are unique to that list (an average of 8.5) as they include brands that are common to all four lists (10 in 2015)

At least all four consultancies agree that Apple is the world’s most valuable brand, even if the value they calculate for it range from a low of $128bn (Brand Finance) to a high of $249bn (Millward Brown).

This degree of inconsistency undermines the credibility of brand valuation as the “proof” of marketing accountability.  Contrary to what many believe, the issue is not about methodology – it is about the assumption that go into the financial models.  The problem is that there is still too much disagreement about the definition of brands and their significance in the decision making process of customers.  As a result, the financial models of the four consultancies may contain wildly different assumptions.  Millward Brown is extremely bullish about the role of brands in general (the aggregate value of their top 100 list is $3,267 bn versus $1,715 bn in aggregate value for Interbrand’s top 100 brands); whereas Brand Finance is a particularly strong believer in the role of brands in banking (its top 30 list includes 7 bank brands, only 2 of which appear in the top 30 of any of the other three consultancies).

My persistent concern is that brand valuation involves treating the brand as if it were a standalone asset that is the sole responsibility of marketing.  It seems that the goal of brand valuation is on proving the value of communication (often specifically, advertising) as opposed to understanding what creates a distinctive experiences for customers. Marketers need to stop treating brand valuation as a tool to prove the value of Marketing, and start using it as a framework for understanding how marketing can contribute to enhancing the overall value of the business.


Brand Valuation is not a Synonym for Brand Strength

In what is generally a very helpful article about how B2B marketers can enhance their impact on the business (“The Key to Deciphering Brand Value“), Julia Cupman falls prey to the error of using “valuation” as a synonym for “brand strength”.  This error is the source of endless grief for marketers because it leads them to believe that proving that the brand is well regarded by customers is the same thing as asserting that the brand has an easily provable financial value.

There are two errors in this logic:

  1. The first is that is ignoring that customer attitudes necessarily translate into behavior
  2. The second is believing that brands should be thought of as standalone financial assets like a building or a piece of machinery

Let me elaborate on each:

Brand strength is generally measured on a self reported, attitudinal basis like a Net Promoter Score or some other metric of preference.  The links between attitudes and behaviors, and between behavior and firm value, are fraught with caveats.  Despite the grandiose claims made by Fred Reichheld and Satmetrix about NPS, academic researchers have failed to establish a reliable relationship between NPS and financial value.  There are too many other factors in the mix – such as whether NPS is predictive of actual consumer behavior and, if it does, whether that behavior has significant financial value.

The process of establishing the strength of the franchise that a brand enjoys among customers is the starting point for the valuation process, but it is naive for marketers to claim that a NPS score of X equates to a Brand Value of Y.

The second error is the belief by marketers that brand valuation is the holy grail of accountability.  In my experience, debates around brand valuation usually degenerate into discussions around the design of the financial model rather than around how marketing is helping drive the value of the overall business.  Marketers find a more receptive senior audience when they frame their contribution in terms of accelerating/magnifying the value of the business rather creating a standalone asset.  This is particularly true in the B2B context where the business typically uses the corporate brand.  Under this scenario, it makes no sense to talk as if the brand could be separated from the business.


Comparison of 2014 Brand Valuation League Tables

I have just uploaded to SlideShare my review of the 2014 league tables for the top 100 global brands as published by Interbrand, Brand Finance, Eurobrand and Millward Brown.  You can check it out here.

Here are the key stats:

  • The number of brands appearing in the four top 100 lists was 209 in 2014 compared to 213 in 2013, 215 in 2012 and 213 in 2011
  • The number of brands common to the four top 100 lists was 29 in 2014 compared to 28 in 2013, 27 in 2012 and 28 in 2011
  • The number of brands common to the four top 30 lists was 11 in 2014 compared to 11 in 2013, 9 in 2012 and 9 in 2011
  • There was disagreement on the year-on-year sign change for 38% of the common brands in 2014 compared to 46% in 2013
  • The high/low valuations of the same brand each year still differs by an average multiple of 2.2

And there is no longer agreement on the most valuable brand in the world.  Last year, Interbrand fell into line with the other three providers and accepted that Apple was more valuable than Coca-Cola (that had held the #1 spot in the Interbrand list since they first published the list in 1999).  This year, Millward Brown broke ranks and re-crowned Google as their most valuable brand (it had previously held the #1 spot in the Millward Brown list from 2007 to 2010).

This level of inconsistency undermines the credibility of brand valuation as the “proof” of marketing accountability.  Contrary to what many people believe, the issue is not one of methodology – the challenge is that there is still too much disagreement about the definition of brands, and their significance in the decision making process of customers.  Arguing to put brands on the balance sheet is not the solution.  The most promising areas for progress in enhancing marketing accountability are in improving the disclosure of marketing spend; and deepening our understanding about how brands contribute to customers’ perception and experience of value.


Brand Valuation 2014

The last couple of weeks have seen the publication of the 2014 top 100 brands lists by Interbrand and Eurobrand.  Both lists were short on drama.  In the Interbrand list, the top 28 brands were identical to the year before, with none moving more than one spot up or down.  In the Eurobrand list, same story – the top 26 brands were identical.

Heinz – ranked at #53 in 2013 – mysteriously disappeared off the Interbrand list.  Dell and Avon fell off the list.  Nokia and Nintendo managed to maintain 98th and 100th place respectively (they had occupied 57th and 67th place in 2013).  Big upward movers were Amazon, Facebook and three car companies (VW, Audi and Nissan).  New entrants to the Interbrand list were DHL and FedEx (who have been on the Brand Finance and Millward Brown lists for the past 3 years), plus Land Rover, Huawei and Hugo Boss.

The Eurobrand list was a similar snooze fest aside the meteoric and rather incomprehensible rise of McKesson, and a miscalculation of Mitsubishi’s ranking.  New entrants to the Eurobrand list included 3M, CVS, MasterCard, The Home Depot and Walgreens – all of which have appeared on previous lists by Brand Finance, Interbrand and Millward Brown.

Compared to 2013, the aggregate value of the top 100 brands rose by 6.7% (Interbrand) and 5.0% (Eurobrand) – surprisingly modest gains given the buoyancy of the stock market and the 11% and 20% rises in the Millward Brown and Brand Finance brand lists (published in May and February respectively).


Brands and Shareholder Value

As a former Finance person, I wince every time I see branding agencies publish simplistic charts with captions along the lines of “strongly branded companies outperform the market” such as those published by Corebrand, Havas, Interbrand and Millward Brown over recent years.  All these charts do is prove that these agencies do not know how to calculate excess returns.

Before you can claim that it is “brand” that is the cause of the outperformance, you need to adjust for the other factors that impact relative performance, such as risk and sector.  And if you want to meet the basic academic standards required for this form of analysis, you need to adjust for the FF4 factors (the three Fama-French factors – risk, market-to-book, cap size – plus Cahart’s momentum factor).

Until you do this kind of adjustment, your analysis is no more credible than saying “a portfolio of companies whose names begin with the letter F outperform the market” – this may be a statistical observation, but no CEO will change the name of their company in order to benefit from the “F effect”.  So marketers should not be surprised if simplistic charts such as those referred to above do not persuade a finance-literate audience to open the purse strings for brand investment.

Doing a proper analysis is hard work because it involves pulling in and crunching a lot of data in order to prove that brand is the true source of the outperformance.  Madden, Fehle and Fournier did such an analysis in their 2006 paper “Brands matter: an empirical investigation of brand-building activities and the creation of shareholder value” that won the Best Paper Award in the Journal of the Academy of Marketing Science that year.  That research did indeed suggest that a portfolio of strongly branded companies generated an excess return and at lower than market risk.  But this paper was criticized for using an independent variable (they used appearance on the Interbrand list as the definition of “strongly branded”) that was strongly related to the dependent variable (shareholder value).

Other researchers have tried to prove the “brand effect” by using measures of brand strength that are unrelated to a company’s market capitalization.  The most credible work in this area has been done by Natalie Mizik, Shuba Srinivasan and Marc Fischer (respectively from University of Washington, Boston University, and University of Cologne).  Their research has generally supported the hypothesis that brands enhance shareholder value, but suggests that the effects are more nuanced than most marketers want to be able to claim.

Even if most marketing agencies lack the skills and resources to perform a robust statistical analysis, their credibility would be vastly enhanced if they at least deflated the brand returns by the relevant sector returns so as to substantiate a claim that “strongly-branded companies outperform their industry peers”.  This is easy to do (you can use an ETF as the proxy for the industry return) and will communicate that the agency is serious about isolating the factors that help a company outperform its peers.

I have analyzed the brand valuation league tables published by Brand Finance, Eurobrand, Interbrand and Millward Brown over the past 5 years.  Aggregating their results suggests that, for the 200 or so publicly-traded companies that are the parents of the brands that appear in these league tables, brand value represents around 16% of enterprise value.  That represents an aggregate value of over $2 trillion.  If brand is truly the asset that these agencies claim it is, then surely it merits a semi-credible analysis of the scale of the incremental business value that it has generated?

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Are You Value Relevant?

Marketers are drawn to the concept of brand valuation because they believe that it will provide definitive proof of the financial impact of marketing.  They are right about the goal and wrong about the method.

The goal of any business discipline should be to demonstrate value relevance – that is, to demonstrate that it has a material impact on the performance and valuation of the business.

There are three drivers of business value – profit, growth and risk.  Demonstrate how you are influencing any one of these for the better (higher profit or growth, or lower risk), and you have the attention of the finance folk and the whole management team.

This is not easy.  It is challenging to develop a comprehensive model of all the factors that influence the customer purchase decision and the importance of each (what academics like to call “attribution”).  That is why marketers fall prey to the apparent simplicity of brand valuation.  It is conceptually so much simpler to lay claim to a specific proportion of corporate cash flows in the name of the brand, and assert that the net present value of these cash flow is the value of the brand.

Simpler, but wrong.  The goal of marketing is to enhance the overall value of the business performance (the size of the pie), not to focus on what arbitrary proportion of that value it can lay claim to (the size of the slice).  That is why business executives get so frustrated with marketers who assert that brand value has gone up while business value has gone down – it demonstrates that marketers care more about their own credibility than about the success of the overall business.

To demonstrate value relevance, marketers are wise to focus on the messier task of developing a “causal model” for how the business makes money, with a specific goal of identifying where customer value can be increased at low incremental cost to the business.  It is this ability to bring together the revenue and cost perspectives on the business that is the foundation for effective business strategy.

An excellent first step is the use of marketing analytics to improve transactional efficiency.  This is the rightly the focus of much of current marketing investment.  But marketers also need to focus on the more strategic contribution of marketing – the development and management of profitable customer relationships based on the delivery of distinctive levels of customer value.  This is harder to measure, but this represents the larger component of the value relevance of marketing and branding.



Brand Valuation – The Marketer’s Perspective

Given the level of interest I have received in the comparison of the results of the various brand value league tables, I decided to post a version of the comparison on SlideShare:

If brand valuation proves to be a “fool’s errand” for marketers, then what is a better way for them to think about describing the business objectives of marketing, and the outlining how to measure its incremental value added?  Here are my thoughts:

I would be very interested in engaging in a more detailed conversation with any readers of this blog about how this value drivers approach might be implemented in the B2B context, and how the approach can be adapted for different industries.



Brand Valuation: Converging Results?

In a discussion earlier this week, someone argued that the consensus that Apple is the most valuable brand in the world is indicative of convergence in the results produced by the various providers of brand valuation services.

In a very narrow sense, he is right.  2013 marks the first year ever that all 4 consultancies that publish annual valuations of the top 100 brands are in agreement about who is #1.  Interbrand finally fell into line with the other three consultancies and allowed Apple to replace Coca-Cola as their #1 brand (a position that Coca-Cola had held since Interbrand first published its top 100 list in 1999).

Millward Brown had Microsoft (2006), then Google (2007 to 2010) as its #1 brand, before handing the crown to Apple in 2011.  Similarly, Brand Finance had Cocoa-Cola (2007), then Wal-Mart (2008 to 2010), then Google (2011), before acknowledging Apple’s pre-eminent status in 2012.

Sadly, this single point of consensus is not symptomatic of a broader convergence in the results of the four surveys.  Here is the comparative data for the last three years:

  • The number of brands appearing in the four top 100 lists was 213 in 2013 compared to 215 in 2012 and 213 in 2011
  • The number of brands common to the four top 100 lists was 28 in 2013 compared to 27 in 2012 and 28 in 2011
  • The number of brands common to the four top 30 lists was 11 in 2013 compared to 9 in 2012 and 9 in 2011
  • There was disagreement on the year-on-year sign change for 15 of the 28 common brands in 2013 compared to 11 of 27 in 2012
  • The high/low valuations of the same brand each year differed by an average multiple of 2.3 in all three years (simple average)

One swallow does not make a summer…


Making the Business Case for Brands: Why is it so Hard?

I had the privilege to present to the Conference Board’s Council on Corporate Brand Management in New York earlier today.  My goal was two-fold:

  1. To share how a finance person thinks about brand & marketing
  2. To provide an overview of the most widely used methodologies for brand equity measurement and valuation

The topic of the business case for brands and/or marketing accountability is, of course, a huge one – but I think we were able to identify a number of ways in which marketers can frame the business impact of what they do in terms that are more compelling to their colleagues in Finance.  Among the ideas that seemed to resonate the most were:

  • Using the construct of profit/growth/risk as a framework for categorizing the business impact of marketing investment
  • Using the aggregated data across the brand value league tables to establish industry norms for the percentage of enterprise value represented by brand
  • Dividing the budget request between the level of spending required to maintain current market position (the “cost to stand still”) versus the portion that will be used to built the “capital stock”

I facilitated a discussion for the hour after my presentation where, following candid descriptions from McDonald’s and Cisco about their respective approaches to brand measurement, there was a lively debate about what members of the group had found to be effective in their organizations.

All in all, a fascinating way to spend the morning!


Brand Valuation: Getting More Reliable or Less?

I was asked whether the degree of consistency across the four 2013 brand value league tables was greater or less than across the 2012 league tables.

The answer is “only marginally” as the following data shows:

  • The four lists contained a total of 213 brands in 2013 vs. 215 in 2012
  • 112 of these were unique to a single list in 2013 vs. 114 in 2012
  • There are 28 brands common to all four 2013 lists vs 27 in 2012
  • The average difference between the high/low estimates of the value of each of the common brands was a factor of 2.2 in both years – in the case of McDonald’s and Shell, there was more than a 4x difference between their high/low brand value in both years
  • For 15 of the 28 common brands, the four agencies disagree about whether the brand increased or decreased in value relative to 2012 – in the previous year the agencies disagreed on the sign change for “only” 11 out of the 27 common brands

What this suggests to me is that each agency is probably highly consistent with itself from year to year, but that the views of the agencies are not converging relative to one another.  This is depressing since you would hope that with increased practice and increased access to data, some form of best practice might be emerging.  For those people who champion the idea of brands on the balance sheet (that would surely need to be predicated on a consensus around valuation methodology), this is not good news.


Brand Valuation 2013 – The Comparison

With the publication of Interbrand’s 2013 top 100 brands list yesterday, I am now in a position to compare the results of the four 2013 league tables (the other three being those of Eurobrand, Brand Finance and Millward Brown).

As with previous years, the comparison is not a pretty one.  Here are the basic stats:

  • The four lists contain a total of 213 brands (112 of these are unique to a single list)
  • There are only 28 brands common to all four lists
  • The average difference between the high/low estimates of the value of each of these 28 brand is a factor of 2.2 – in the case of McDonald’s and Shell, there is more than a 4x difference between their brand value as calculated by each of the four agencies
  • For 15 of the 28 common brands, the four agencies disagree about whether the brand increased or decreased in value relative to 2012

Email me at if you would like to receive a copy of the comparison!



Brand Valuation – Interbrand 2013

Interbrand’s 2013 league table of the top 100 brands was released today.  Other than finally acknowledging Apple as the #1 brand (Interbrand had been charmingly “old world” over recent years in sticking to its assertion that Coca-Cola was the #1 brand), the new list contained little by way of drama.  But for the absence of Nokia, the top 27 brands were identical, with most moving up or down by only a single place.

The aggregate value of the top 100 brands rose by 8% versus Interbrand’s 2012 list to just over $1.5 trillion.

Facebook recorded the largest % increase in brand value (+43%) and moved up to 52nd place.  Nokia’s brand value  fell by 65% and it nows occupies 57th place in the list (down from 5th in 2007/2008/2009 to 8th in 2010 to 14th in 2011 to 19th in 2012).

There were only 3 changes in the top 100.  Discovery debuted at #70 while Duracell returned to the top 100 list for the first time since Interbrand’s 2009 league table.  Chevrolet was a new add for Interbrand but has featured regularly on the Brand Finance and Eurobrand league tables in recent years.

Dropping out of the top 100 this year were Blackberry, Yahoo and Credit Suisse.  How are the mighty fallen!  Only 2 years ago Blackberry was ranked 56th, Yahoo 76th, and Credit Suisse 82nd in the Interbrand list.



Brand Equity Measurement & Valuation

Last night I reprised my role from January and was again the guest lecturer on the topic of brand valuation at Professor Berndt Schmitt’s MBA elective course on “Managing brands, identity and experiences” at Columbia.

Given the work experience and intellectual caliber of the students, I took the opportunity to broaden the focus of the session away from the mechanics of how to value brands and towards a wider discussion of the business objectives that brand valuation serves.

As a result, I hope that I left them better able to argue for the strategic contribution of marketing, and the importance of the concept of brand equity as a “reservoir of future cash flow” (Tim Ambler’s elegant characterization) which substantiates the claim that brands are truly business assets.

Based on their reaction to the material I was presenting, I believe that three points were particularly well received:

  • First, that the role of marketing is to understand the key “currencies” in which customer value is denominated in order to develop value propositions that go beyond the purely functional
  • Second, that the perspectives of Marketing and Finance are easier to align once it is recognized that marketing’s role is to create incremental cash flow over the short term (through increased transactions) AND over the long term (through increased customer preference) – the challenge is that only the short term component is readily visible to Finance
  • Third, that even if the discipline of brand valuation is in its infancy (as evidenced by the woeful inconsistency between the brand values published by Brand Finance, Interbrand and Millward Brown), the data can be used to generate a useful “rule of thumb” for the economic significance of brands in different industry sectors

I provided a handout that includes a comparison of the Brand Finance, Interbrand and Millward Brown brand value league tables plus the calculation by Type 2 Consulting of what these brand values imply about the proportion of enterprise value represented by brands for each of the 24 GICS industry sectors.  Email me if you are interested in receiving a copy.


Value of Brand – Columbia


I was the guest lecturer this week at Tasha Space’s elective course “The Value of Brand: Making the Business Case” (part of the Masters in Strategic Communications program at Columbia University).

It was a great group of students – lots of real world experience and a hunger to be strategic about how they thought about their craft and its relevance to business performance.  A quick poll at the outset of the session established tbat they were struggling with three main issues:

  • How to argue the case for brand as a strategic asset (especially given the inability to recognize it as such under current accounting conventions)
  • The most compelling frameworks and language to use with senior management when explaining the relationship between branding and value creation
  • How and when to value a brand

I based the subsequent presentation and discussion around three main points:

  1. Motive: most business managers are not being disingenuous when they ask about the ROI on marketing. They genuinely cannot see why, if customers are rational, there is a need for marketing
  2. Mandate: once business managers appreciate that customers derive value from a wider set of sources than just functional performance, they are receptive to the notion that the strategic mandate for marketing involves establishing the target customers (segmentation) and developing a compelling offer to them (value proposition)
  3. Measurement: once the mandate for marketing is understood to involve a focus on both customer value and financial value in both the short-term and long-term, then business managers appreciate that marketing ROI involves measuring performance on all four of these dimensions

It was a stimulating discussion – and I hope I was able to provide as much value to the students as they did to me through their insightful questions.

Please drop me an email if would like a copy of the handout from my talk


Brand Valuation 2013 Part 2

I have spent a little more time looking at the brand valuation league tables provided by Brand Finance, Interbrand, and Millward Brown for the past two years.

My question was “even if we disregard the absolute differences in the valuation ascribed to the individual brands by these three agencies, is there at least directional consistency between them on which brands are getting more valuable, and which ones are declining?”

There are 32 brands that are common to the last two years’ league tables from these three providers. Sadly, the answer to my question above is “not really” – for 16 of these 32 brands (fully 50% of the total), the three agencies have differing opinions about whether the brand increased or decreased in value since the previous survey by that same agency.

In only 50% of the cases was there consensus that the brand had either increased in value (14 brands – Amazon, American Express, Apple, Coca-Cola, eBay, GE, Google, IKEA, Mercedes, Nissan, Samsung, SAP, Toyota, VW) or decreased in value (2 brands – HP, Microsoft). For the other 16, there was a range of opinions with at least one agency showing an increase in brand value for a brand that one of the other two agencies was showing a decline in brand value.


Brand Valuation 2013

I have just completed one of my periodic reviews of the latest brand valuation league tables from Millward Brown (published last week) and Brand Finance (published in early March).

Here are the basic statistics for the comparison of the most recent league tables published by Millward Brown (May 2013), Brand Finance (March 2013), Interbrand (October 2012) and Eurobrand (September 2012):

  • The four top 100 lists include a total of 211 brands, but only 28 are common to all four lists and 108 appear on just one of the four lists
  • The four top 30 lists include a total of 62 brands, but only 11 are common to all four top 30 lists and 35 appear on just one of the four top 30 lists

Restricting the analysis to the three more established providers (Interbrand has published annually since 1999, Millward Brown since 2006, and Brand Finance since 2007):

  • The three top 100 lists include a total of 179 brands, but only 34 are common to all three lists and 92 appear on just one of the three lists
  • The three top 30 lists include a total of 53 brands, but only 12 are common to all three top 30 lists and 26 appear on just one of the three top 30 lists

This diversity of opinion is mirrored in the valuations of the 34 brands common to all three lists:

  • The aggregate value of these same 34 brands ranges from $1.57 trillion (Millward Brown) to $935 billion (Brand Finance)
  • The valuations for 19 of the 34 brands differ by a factor of 2 or more, with the most pronounced discrepancy being in the value ascribed to the Shell brand ($4.8 billion according to Interbrand’s valuation but $29.8 billion according to Brand Finance – a difference of 6.2x), but with factors of 3 or more being observed between the valuations for Banco Santander, IBM, McDonald’s, Nissan, SAP and UPS

These inconsistencies reveal just how subjective the art of brand valuation remains.  Each of the providers uses a perfectly credible “economic use” approach so the differences in the resulting valuations is a reflection of the assumptions they put into their respective models.

This is disappointing for marketers who are hoping that brand valuation can serve as some form of “silver bullet” that definitively and unarguably proves the contribution of marketing to business value.  We are a long way from being there yet.

The brand valuation league tables provide support for the assertion that “brands are important economic assets” – but even at this aggregate level, the degree of difference between the opinions of the three main providers reveals worrying large (based on the 12 brands common to the three top 30 lists, the proportion that brand value represents of the overall enterprise value of their respective parent companies is 18% according to Brand Finance, 22% according to Interbrand, and 30% according to Millward Brown).


Brand Value by Industry Sector

Wouldn’t it be useful for marketers to have a credible “rule of thumb” across different industries for the percentage of enterprise value represented by brand?
That was the subject of the latest piece of analysis that Type 2 Consulting conducted for the ANA (the Association of National Advertisers).  We have often expressed concern over the variation in the brand values ascribed to individual brands by the different agencies who publish brand valuation league tables, but confidence that the combination of all these data points would provide a reliable estimate of the relative importance of brand value at the industry level.
Here are the key steps in our approach:
  • We combined the data from the brand value league tables published by four agencies for the last four years (2009 to 2012) using the lists of the top 100 brands published by Eurobrand, Interbrand and Millward Brown, and the top 200 from the Brand Finance top 500 list.  These 14 league tables (Eurobrand first published in 2011) featured 351 brands and 2,028 valuations
  • We then isolated the 315 brands and 1,803 observations that belonged to 283 publicly-owned companies (companies such as P&G, Unilever, Diageo and Nestle have multiple brands on the list)
  • We assembled the financial data for these 283 companies for the times periods relevant to each brand value observation
  • We then calculated an average brand value per company per year and expressed this as a percentage of the enterprise value (essentially, market cap plus long-term debt minus cash) of that company for that year
  • We then calculated the average brand value per industry sector for each of the four years
  • We then generated our industry “rules of thumb” by aggregating brand value and enterprise value of the relevant brands/companies across the four years
The results pass the “sniff test”:
  • The industry group with the lowest proportion of brand value to enterprise was was energy (5.0%)
  • The industry group with the highest level of brand value to enterprise value was consumer services (42.2%)
  • The overall average across industries (excluding financials and utilities) was 18.5%
The result is, we believe, the most credible data yet available to marketers about the proportion of enterprise value represented by brand across different industry sectors.
Email us if you would be interested in receiving the full list of industry groups for which we generated a “rule of thumb” for brand value


Brand Valuation 2012

The last three weeks have seen the publication of the 2102 lists of the world’s 100 most valuable brands by Interbrand and Eurobrand.  So I have taken the time to review each, and to conduct a comparison of results across the four lists (Brand Finance and Millward Brown being the other two).

Here are some basic statistics:

  • There are 212 brands that appear across the four top 100 lists, of which only 27 appear on all four lists
  • There are 63 brands that appear in the four top 30 lists, of which only 9 appear on all four top 30 lists
  • The total value of the top 100 brands ranges from $2.6 trillion (Eurobrand) to $1.4 trillion (Interbrand)
  • The value attributed to the 27 brands common to all four lists ranges from $1,071 million (Millward Brown) to $686 million (Brand Finance)
  • The valuations given to the individual brands that are common to all four lists varies by a minimum of 30% (HP, American Express) to a factor of more than 4x (McDonald’s, Shell)

My conclusion is that brand valuation is still in its infancy (possibly, adolescence) as a business discipline.  While these league tables provide a useful quantification of the financial value of brands in aggregate and by industry sector, the individual valuations are still too variable to be relied upon.  Therefore, marketers should use brand valuation as a means of framing the economic significance of the brand assets they manage, but stop short of suggesting that brand valuation is reliable enough to be used as a performance metric.



Brand Value – Interbrand 2012

Interbrand’s 2012 list of the world’s most valuable brands has just been published.

First let us bid farewell to the departed from the 2011 – history suggests that once gone, ne’er to return.  So fare thee well Armani, Barclays, HTC, Nivea, UBS, and Zurich.  Blackberry nearly joined the ranks of the departed, just retaining 93rd place after a 39% fall in brand value.

And hail bright new stars of the branding firmament – Facebook, Kia, MasterCard, Pampers, Prada, and Ralph Lauren.  Well, not so new stars since five of these “new” names have already appeared in the Brand Finance or Millward Brown top 100 brand lists.  Only Kia is genuinely new.

Otherwise the list was short on drama.  Interbrand took the chance to update its valuation of the Apple brand – but event the 129% increase still leaves Interbrand’s valuation at only 42% of the value ascribed to the Apple brand by Millward Brown, but in the same ballpark as Brand Finance’s number.  Other big risers were Amazon, Oracle and – somewhat more surprisingly – Nissan.  Big losers included financial services (Credit Suisse, Goldmans – no surprises there) and some stumbling media brands (MTV and Yahoo), and Nokia.  The latter is no Kia.

Ha! Might that be the world’s first brand valuation-inspired joke?


Brands and Enterprise Value

I have been refreshing my analysis of the proportion of enterprise value that is represented by brand value – using the data published by Brand Finance, Eurobrand, Interbrand and Millward Brown.

This analysis is for companies with “normal” balance sheets where brand value should be expressed as a percentage of total enterprise value (market cap plus long-term debt) since these are the liabilities that are funding the asset base of the company.  This means eliminating the 56 financial services companies due to the specific nature of their balance sheets (I have done a separate analysis of these – see my post “Brand Value in Financial Services“).

That leaves us with a data set of 856 observations of 226 brands owned by 191 companies that appeared in 9 surveys produced by the above 4 consulting firms over the past 3 years.

The headline finding is that, on average over the past three years, brand value represented 17.2% of the enterprise value of these 193 companies.

Based on the brand value estimates from just the most recent league table from each of the 4 consulting firms, the proportion of enterprise value represented by brand was 16.3% – brand value totalled an aggregate $2.4 trillion dollars out of total enterprise value of $14.8 trillion (188 companies, 219 brands).

That makes brand a very significant component of the intangible value of these companies.  For the record, the tangible asset base of these 188 companies came to $6.1 trillion – 41.0% of their enterprise value.



Brand Value in Financial Services

I have just completed an analysis of brand value as a proportion of market capitalization for financial services firms.  The short answer is 15% give or take.

The long answer is that I collated all the published brand value estimates for financial services brands over the period 2010 to 2102.  That gave me 248 valuations for 56 brands across 9 leagues tables produced by 4 consultancies (Brand Finance, Eurobrand, Interbrand, and Millward Brown) over 3 years.

I then compared the brand values to the market capitalization of the parent companies.  The simple average of the results was 16.1% and the weighted average (aggregate brand value divided by aggregate market capitalization) was 13.4%

The range of individual values went from 4.1% at the low end to an implausibly high figure of 46.4% (Brand Finance’s 2102 valuation of Generali).  So I tried trimming the top and bottom 5% of observations.

This left me with 223 observations that ranged from 6.6% at the low end (Millward Brown’s 2011 valuation of the Chase brand) to 31.2% at the high end (Brand Finance’s 2011 valuation of the AXA brand).  For the trimmed data set, the simple average was 15.6% and the weighted average was 14.6%

All of this points to the fact that brands are significant assets of financial services companies.  So, if you are asked to provide an estimate for the proportion of the market value of a financial services company represented by its brand, you can say that “90% 0f observations fall within the 6% to 31% range with a mean of 15%”




Columbia MBA Presentation – Report

I had a great time last night speaking at the Tasha Space’s class on “The Value of Brand” – one of the courses offered in Columbia’s Masters in Strategic Communications.

It was a great group of executives from a wide range of industries, all of whom were struggling with the challenge of how to communicate or calculate the financial value of their contribution as marketers.  Each framed the challenge somewhat differently.  This is what they said they wanted to get out of the session:

  • To understand how brands look from a financial person’s point of view
  • How to explain the value of marketing to a cynical audience
  • How to communicate effectively with business managers
  • How to justify a budget for marketing
  • How to calculate the ROI on marketing
  • How to get more comfortable with numbers

We had a wide ranging discussion that touched on a large number of the themes familiar to regular readers of this blog.  I suggested that they remember six things:

  • Marketing is valuable because customers are not Vulcans – they care about more than just functionality
  • Marketing’s job is to help the business conceive and deliver products and solutions that are both 100% rational and 100% emotional in their appeal
  • The goal of marketing is to support sales in the short term, plus to build an asset in the form of a brand and/or corporate reputation that will drive sales in the long term
  • Analysis of the role of brand/reputation in the purchase decision allows the financial value of this asset to be estimated – but this is an artificial exercise since the customer is buying the “bundle of benefits” rather than the brand is a discrete element
  • Estimates of brand values vary wildly across different providers, undermining the credibility of brand valuation as a “science” that can be used to demonstrate the value of marketing
  • The best way of demonstrating marketing accountability is for marketers to show they care about increasing the value of the business by focusing their marketing efforts on the variables to which the value of the business is most sensitive

I had a great time and hope that I was able to equip the executive students with a number of tools and frameworks to enable to engage effectively with their finance colleagues


Columbia MBA Presentation

I am presenting this week on Columbia’s Masters Program in Strategic Communications.  My topic is “The Value of Brand: Making the Business Case”

Most of the participants are already in the workforce and so I am looking forward to a lively discussion about the challenge that client-side marketers face in getting the brand to be a acknowledged as an important business asset.  I am really sympathetic to this cause – it is only a minority of marketers that do not have to fight a daily battle for recognition of the strategic contribution that their discipline makes.

But I fully expect the conversation to swiftly default to a discussion about brand valuation.  The implicit belief is that “if only we could put a number on the financial value of our brand, then somehow we would have the respect we crave – and the budgets we want.”  I will be there to deliver a sharp reality check…

Don’t get me wrong – I think that being able to put an estimate for the financial value of a brand is an excellent idea.  But I know from bitter experience that this is generally neither as easy nor as productive an exercise as marketers like to believe:

  • It is not easy because it involves identifying the proportion of the profits of the company that are solely and uniquely attributable to the brand (so, technically, any portions of earnings attributable to innovation, distribution, customer service, or general corporate reputation should be excluded).  This usually results in a fight between marketing and other departments about who can claim credit for the earnings
  • It is not productive because of two things – the controversy referred to above; and the fact that finance people are less interested in what earnings are attributable to the brand than they are in how those earnings can be increased

So my message will be to think of brand valuation as the start of the story, not the end of the story.  Marketers should fixate less on how to get to a number, and more about what that number means and how it can be increased.


Brands Do Not Have Absolute Value

One of the tricky things about brand valuation is the evidence that brands act as multipliers on the performance of a business, rather than having a single, absolute value.

The research we did at BrandEconomics using the BrandAsset Valuator data from Young & Rubicam and the EVA data from Stern Stewart demonstrated that brands are more valuable in the hands of better run businesses.  Our analysis showed that increasing the brand strength of a poorly performing business lifted its valuation multiple by around 20%, but improving the brand strength of a well-performing business raised its valuation multiple by 50%.

This reinforces the point that I have made many times – that brands are an integral part of a business system, and that it does not make sense to attempt to value them independent of the other elements of that system.  The customer is paying for the entirety of the experience, not the individual elements in isolation.


Brand Valuation 2011 (Reprised)

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.


Brand Valuation – European Brand Institute

I am delighted to see that a second European firm has entered the fray to be the publisher of the definitive annual ranking of the world’s most valuable brands.  This means we now have two US-headquartered contestants (Interbrand and Millward Brown) and two European-based contestants (Brand Finance and, as of last week, the European Brand Institute).

The European Brand Institute launched its inaugural list of the world’s top 100 brands on October 12 and it is a charmingly eclectic list.

Two things in particular caught my eye:

  • The inclusion of a far greater number of European companies (including Bayer, BASF, Bertelsmann, Bosch, Dior, Fiat, Rewe, Sanofi-Aventis, Vivendi), many of whom have not previously appeared in the top 100 brand lists
  • The inclusion of corporate brands (AB InBev, Bertelsmann, Daimler, Diageo, Exxon-Mobil, J&J, LVMH, McKesson, P&G, Pfizer, Philip Morris, Unilever) rather than their better known product brands such as Budweiser, Louis Vuitton, Marlboro, Mercedes or Smirnoff

The effect of these inclusions is, of course, the exclusion of some perennial members of the top 100 list – you will look in vain for Canon, Dell, eBay, Porsche, Santander or Siemens on the European Brand Institute’s list.

The consequence of this is that there only 30 brands are common to all four top 100 lists for 2011.

Nonetheless, I am pleased to see another well-intentioned and thoughtful approach being taken to the topic of brand valuation.  As a rookie player, the European Brand Institute should be commended on an impressive debut.

That is not to say that the list is devoid of some “head scratchers” – CNP? McKesson? Rewe? Seriously??

As the European Brand Institute prepares their 2012 rankings, there is one big issue that I would like them to ponder:  is the purpose of their list to measure brand value at the corporate level (the NPV of all brand-related profits earned across all owned brands) or at the individual brand level (whether that brand is a corporation or not)?

The 2011 list contains a mix of corporates that have “a house of brands” strategy (Daimler, Diageo, Inditex, Philip Morris, Pfizer, Unilever) and corporates with a “branded house” strategy (Apple, H&M, Honda, Microsoft).  It is hard to tell whether the intent of the list is to identify the largest brand owners – or the largest brands?



Brand Valuation 2011

Last week saw the publication of Interbrand’s 2011 league table of the 100 most valuable brands.  At a time when markets have at best moved sideways (the MSCI world index is down 7% year on year; and the S&P is down 1%) and the level of intangible value in the economy has at best remained constant, it seems implausible to claim a 5% rise in brand value.  It begs the question “which is the other intangible assets of these businesses have become less valuable over the past year?”

I will do a deeper analysis of the level of intangible value among the companies on the Interbrand list in a future post.  For now, I want to do my regular review of the compatibility of the results in the Interbrand, Millward Brown and Brand Finance league tables of the 100 most valuable brands in 2011.

The short answer is that the results are worryingly inconsistent.  There are only 33 brands that are common to the three league tables (down from 38 in 2010) and the aggregate value of those 33 brands is estimated at $695bn by Brand Finance, $801bn by Interbrand, and $1,102bn by Millward Brown.  Yes, the same 33 brands are valued 59% higher by Millward Brown than by Brand Finance.

At the individual brand level, the results are even more divergent.  Apple is accorded a value of $153bn by Millward Brown but only $33bn and$30bn by Interbrand and Brand Finance respectively.  IBM is accorded a value of $101bn by Millward Brown but only $70bn and $39bn by Interbrand and Brand Finance respectively.  Google accorded a value of $111bn by Millward Brown but only $55bn and $44bn by Interbrand and Brand Finance respectively.  McDonalds accorded a value of $81bn by Millward Brown but only $36bn and $22bn by Interbrand and Brand Finance respectively.

Let me stress that each of these three agencies enjoys high standing in the market, and uses a reputable methodology for arriving at their estimates of brand value.  The divergences in their results reflect differences in their assumptions about the relative importance of brands in generating future cash flow, not differences in their methodology for valuing these cash flows.  The only logical conclusion to draw is that BRAND VALUATION IS HIGHLY SUBJECTIVE.

Until such time as there is greater convergence on the important topics such as “what does a brand valuation actually represent?” and “how can you validate the proportion of the customer purchase decision that is solely attributable to the brand?” and “what is the difference between brand and reputation?” I will continue to urge marketers to regard the topic of brand valuation with caution.  It is NOT the silver bullet to achieving credibility with your finance colleagues.

Brand valuation for marketing purposes is fool’s gold.  My major concern is not so much that it produces a number that no-one can justify (although this is certainly a problem), but that it leads to a dysfunctional situation in which marketers try to lay exclusive claim to a certain portion 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, marketers should focus on how they “move the needle” on established business performance metrics rather than seeking to lay exclusive claim to cash flows that are always the reflection of the combined attractiveness of a company’s products.



Brand Valuation and the Tooth Fairy

Just because we desperately wish for something to be true does not make it so.  This applies to the tooth fairy (sorry kids) and it applies to brand valuation.

Many people believe that opportunity to list brand value on the balance sheet is the panacea that will usher in a new era of respect for the business contribution of marketing.

This is wishful thinking that betrays a fundamental ignorance about the function of the balance sheet and a rosy optimism about the credibility of brand valuation.  Oh, and did I mention that nothing is stopping companies from reporting on the financial value of their brands in the notes to their financial accounts – yet only a tiny fraction choose to do so?

The function of a balance sheet is NOT to be an exhaustive inventory of the assets of a company (I wish it was – and accounting reform is aimed at moving in this direction).  For now, the balance sheet serves as the record of the cumulative total of all the transactions that the company has undertaken.  No transaction, no right to be on the balance sheet.  That is why brands that were acquired can appear on the balance sheet, but not those that are home grown.

For those who have a rosy optimism regarding the credibility of brand valuation as a business discipline, I would simply encourage you to review how the financial value attributed to some of the world’s leading brands differs wildly across surveys.  Despite each using legitimate valuation approaches, the numbers produced by Interbrand, Millward Brown and Brand Finance often vary by a factor of 2 or more.  This does not generate confidence with CFOs and anyone else who is legally required to vouch for the accuracy of the financial accounts.

The crusade to have brands recognized on the balance sheet is at best a distraction, and at worst an impediment to the greater appreciation of the business value of marketing.   I bitterly regret that a lot of effort is being wasted on this fool’s errand that could have been spent on more productive ends.

Analysts and investors have consistently said that they want better disclosure about the level and nature of marketing spending – they have no appetite for a brand valuation number, the credibility of which it will be impossible for them to verify.  Any marketer who is serious about improving the understanding of the financial impact of marketing should devote their efforts to achieving harmonization in the definition of marketing activities and common standards for their reporting, rather than to brand valuation.

As regular readers of this blog will know, I am a passionate believer in the strategic importance of marketing, and of fostering greater collaboration between marketing and finance.  In my career, I have valued literally hundreds of brands for a variety of technical and management purposes.

I know that putting brands on the balance sheet appears like a seductive alternative to daily grind of demonstrating marketing accountability but then wishing on a star seems like a more attractive route than the daily discipline of trying to realize your dream.



Marketing Metrics & Strategic Decisions

I spoke this morning at an MBA elective at Columbia’s Graduate School of Business entitled “marketing metrics and strategic decisions.”  My particular topic was brand equity measurement and valuation.

I always enjoy speaking with MBA audiences because they are intellectually curious and motivated to understand what makes businesses successful.  This group did not disappoint.  They asked lots of good questions, all essentially focused on the topic of “how important is branding to the performance and valuation of businesses?”

As their class assignments, they had been tasked to go through the annual reports of a number of companies and identify which marketing metrics were being reported.  The result was a veritable mishmash of metrics, running the gamut from the highly quantitative to the very subjective, and from marketing inputs to market outputs.  It was a great exercise to illustrate the complexity of demonstrating the causal relationship between marketing investment and corporate performance.

Fortunately Dawn Lesh, the course instructor, had encouraged the students to think in terms of where these metrics plotted on the “value chain” of marketing.  They were using the latest framework that Don Lehmann has developed in conjunction with Mike Hanssens of UCLA that allows you to classify metrics according to the stage in the process from marketing capabilities to corporate valuation to which they related.  Don was kind enough to participate in on the session to provide some live commentary on how his framework could be used most effectively.

All in all, a great way to spend a morning!


Value Relevance

One of the major challenges for a marketing services provider is to prove to a financial audience that they can have a material impact on the performance and valuation of a business.  Or, as academics and finance folk like to say, that it is “value relevant.”

Value relevance requires demonstrating that whatever you do has a material impact on one of the three drivers of corporate value – profit, growth or risk.  Influence any one of these for the better (higher profit or growth, or lower risk), and you have the attention of the finance folk and the whole management team.

This is easy to say, and remarkably hard to do.  There are two principal challenges.  The first is conceptual – the finance/business folk typically believe that customer purchase behavior is highly rational and so the impact of marketing is marginal and tactical.  The second concerns measurement – it is challenging to isolate the exact degree to which the customer decision was influenced by a wider set of human considerations rather than a narrowly functional view (what T2 calls the “Vulcan” versus “Earthling” perspective).

Much of the energy in marketing analytics is focused on measuring transactional efficiency – not because that is necessarily where the greatest value is being created, but because that is where it is easiest to demonstrate that some degree of incremental value is being contributed by marketing.

The tragic irony of this is that it is reinforcing the finance/business belief that marketing is a short term, tactical discipline whose full impact is captured in a simple ROI formula that considers investment and return in the current period.

The bigger contribution of marketing – the development and management of profitable customer relationships – is ignored.  It may be harder to measure, but this represents the larger component of the “value relevance” of marketing and branding.


Brand Valuation – 2007 to 2010

I thought I would round out the 2010 brand league table season with a little retrospective on the past 4 years.  Why 4 years?  Because it is only since 2007 that we have had the luxury of three competing versions of the top 100 most valuable brands in the world:

  • Interbrand has produced a world’s most valuable brands list since 1999 – their initial list had 62 brands; increasing to 74 in 2000; finally hitting the 100 mark in 2001 (purportedly representing the entire universe of brands with a value of over $1bn)
  • Millward Brown entered the fray in 2006 following the establishment of Millward Brown Optimor (their specialist brand valuation unit), and has published annually since then.  Given the upheavals this summer in the Optimor unit, it remains to be seen whether they will continue to publish in 2011
  • Brand Finance began publishing a list of the world’s most valuable brands in 2007 – their initial list featured 250 brands; subsequent lists have featured 500 brands

The Brand Finance list comes out in January; the Millward Brown list is published in April; and the Interbrand list is typically published in the first week in August (but was delayed until mid September this year reflecting their loss of BusinessWeek as a media sponsor).

Brand Finance typically self publishes its lists but runs special excerpts in banking and retail magazines;  Millward Brown has had the FT as their media partner;  Interbrand’s early lists were published in the FT but appeared as major features in BusinessWeek from 2001 to 2009.  As noted above, Interbrand had to self publish this year.

Over the 4 years that all three lists have been published, a total of 220 brands have made at least one appearance on one of the top 100 lists.  29 brands have achieved the distinction of appearing on each of the three lists in each of the 4 years. [FYI 24 brands have the distinction of having appeared on all 19 of the top 100 lists – the Interbrand top 100 list for all 10 years, the Millward Brown list for all 5 years, and the Brand Finance list for all 4 years.]

As I noted in yesterday’s post, there is a worrying lack of consistency across the three providers.  Over the past 4 years, the number of brands that were common to all three lists in a single year has never exceeded 46 (in 2007) and was as few as 33 (in 2009).  Within any given year, the maximum number of brands common to any two of the lists hit a high of 70 (between the 2007 lists for Millward Brown and Brand Finance) and a low of 46 (between the 2009 lists for Interbrand and Brand Finance).  In any given year, the number of brands common to any two of the top 100 lists is typically no more than 60.  Over the past 4 years, the Brand Finance and Millward Brown lists have averaged 66 common brands each year, while the Brand Finance and Interbrand lists have averaged only 52 common brands.  [This is a curious result since Millward Brown and Interbrand both report using the “earnings split” approach to brand valuation, while Brand Finance uses the “relief from royalty” approach.  One might therefore have expected that the Millward Brown and Interbrand results would have been the most similar.]

The consistency within the lists from each provider are, as would be expected, far greater than across the three providers:

  • 81 brands are common to the last 4 Interbrand lists, with 59 brands appearing on all 10 lists published since 2001
  • 71 brands are common to the last 4 Millward Brown lists, with 64 brands appearing on all 5 of their lists since 2006
  • 70 brands are common to the 4 Brand Finance lists published since 2007

With that, I believe that I have concluded my analysis of the 2010 lists of the world’s most valuable brands!  Unless you have any further questions you want me to address, I plan to enjoy the 3 month hiatus until the 2011 Brand Finance list comes out….


Brand Valuation 2010

Now that Interbrand’s 2010 list of the world’s most valuable brands has been published (September 15), I have spent some time analyzing the data across the Interbrand, Millward Brown and Brand Finance lists for 2010 to see what wisdom can be gleaned.

The first point to note is that the three lists are remarkably different.  Here are some of the ways they differ:

  • The brands are different – there are a total of 172 brands across the three lists, with greatest degree of overlap between the Brand Finance and Millward Brown top 100 lists (64 brands in common) and the least overlap is between the Interbrand and Brand Finance lists (only 50 in common); only 39 of the 172 brands are common to all three lists
  • The individual brand values are different – among the 39 common brands, the value ascribed to 16 of the brands differs by more than a factor of 2 (Banco Santander is the most egregious case with the brand value calculated by Brand Finance being over 5x the brand value calculated by Interbrand); brands with more than a 3x difference between the minimum and the maximum value on the three lists include Shell, Apple, Google and McDonalds
  • The aggregate brand value is different – the total value of the 100 brands on the Interbrand list is $1.2 trillion versus $1.5 trillion for the Brand Finance 100, and $2.0 trillion for the Millward Brown 100.  The minimum value required to make it onto each list in the #100 slot is $3.4 billion for the Interbrand list, $7.5 billion for the Millward Brown list, and $7.9 billion for the Brand Finance list

As regular readers of this blog will know, I think the single most important statistic to be calculated from these lists is the proportion that brand value represents of the market value of the parent companies.  Here are a number of versions of this statistic:

  • The aggregate brand value of the 97 brands on the 2010 Interbrand list that belong to publicly traded companies (Armani, IKEA and Zara are private companies) represented 12% of the market value of their 93 parent companies (Coca-Cola, Diageo, L’Oreal, LVMH, Nestle and Yum Brands each had 2 brands in the Interbrand 100); the equivalent number for the Millward Brown and Brand Finance lists were 18% and 13% respectively
  • For the 160 brands across the three lists that belong to publicly traded companies, the aggregate brand value represented 22% of the aggregate market value of their parent companies (for brands that appeared on more than one list, I used the average of the brand values)
  • For the 39 brands that are common to all three 2010 lists, the brand value as calculated by Interbrand represented 24% of the market value of their parent companies; the percentage based on the Millward Brown brand value estimates was 27%; and the percentage based on the Brand Finance brand value estimates was 19%

This data suggests that mega brands (those that make it onto all three lists) represent more than 20% of the market value of their parent companies while, for the economy more broadly, brand value probably represents around 10% to 15% of market value.


Brand Valuation – 2010 Interbrand: Olas y Adios

I am always intrigued by the arrivals and departures from the list of the top 100 brands.

The 2010 league table sees 10 new arrivals, with Sprite entering the list at #62 and a brand value of $5.6bn.  It is the only true new entrant as of the other 9 brands, two (3M and Heinken) have appeared on Interbrand’s list in previous years, and the other seven have already featured on the Millward Brown or Brand Finance lists (Banco Santander, Barclays, Corona, Credit Suisse, Jack Daniel’s, Smirnoff, and Zurich Insurance).

The adios brands are a more interesting bunch.  Gone from the 2010 list are some that would be expected (BP and Burger King) and a number of recession-hit luxury brands (Chanel, Lexus, Prada, Rolex) and some that may simply have just missed the cut (Duracell, Polo, Puma).  The disappearance of Wrigley’s from the list (#51 in the 2009 list with a brand value of $6.7bn) presumably reflects the difficulty of getting adequate financial data now that Wrigley’s is part of the privately held Mars group.

The relatively unexciting nature of the departures and arrivals (BP aside) reinforces the impression that the past year was not one for breakout branding.  As I noted in my earlier post, the top 20 brands were the same in both the 2010 and 2009 Interbrand lists and saw a modest 4% increase in their aggregate value.  By happy coincidence, the top 50 brands were also identical across the two lists, with an identical increase of 4% in aggregate brand value.  Rounding out the “no big changes” is the news that the aggregate brand value of the 90 brands common to the 2009 and 2010 lists is also 4%.

In my view, the biggest story in all of this data is how the aggregate value of the 100 brands on the Interbrand list ($1.2 trillion since you ask) compares to the aggregate market value of the S&P 500 ($10.6 trillion).  So when you are next asked “how much of business value can be attributed to brands?” you now have the data to support an answer of “about 11%”


Brand Valuation – Interbrand’s 2010 League Table

Interbrand released its 2010 league table of the world’s most valuable brands less than an hour ago.

On first glance, it looks perfectly reasonable.  In fact, maybe even a little dull – the top 20 brands are exactly the same as in Interbrand’s 2009 league table.  Aggregate brand value for the top 20 brands is $654 billion vs. $628 billion in 2009 – an increase of 4% (by way of comparison, the S&P 500 stands 7% higher today than a year ago).

The devil is in the detail in that, within the top 20 brands, no less than 7 are deemed to have experienced double digit percentage changes in value (4 of these were for the better, and 3 for the worse).  Significant risers were Apple, Google, HP and Samsung.  Significant decliners were Toyota, Nokia and GE.

I will comment on the full list in a subsequent post.


Brand Valuation – the Final of the Triumverate

Tomorrow sees the publication of Interbrand’s 2010 league table of the world’s 100 most valuable brands.

Whatever the fortunes of the brands themselves (something I will comment on tomorrow), 2010 has not been a good year for the providers of brand league tables.  For the first time since their league table was first published in 1999, Interbrand does not appear to have been able to secure a media sponsor (BusinessWeek had published it since 2002, and the Financial Times prior to that), and Millward Brown Optimor has been significantly restructured, raising questions about whether we will see a 2011 most valuable brand league table from them.  Only Brand Finance’s league table – that has had the lowest profile of the three – has been spared a major shake up (at least, as best I know).

Whatever the imprecision in the methodology behind these league tables and consequent inconsistency of the results across the providers, the league tables at least provided an indication of the scale of the economic importance of brands.  It saddens me to see their profile so diminished.

But hope springs eternal.  Given the persistence of management interest in the topic of intangible assets, I would not be surprised if Bloomberg BusinessWeek had plans to create their own league table.

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Brand Valuation Comparisons

I had a chance last night to update my comparison of the most recent brand valuation surveys by Millward Brown (May 2010), Brand Finance (January 2010) and Interbrand (September 2009) to review what can be said about the value of brands at the aggregate and individual levels.

Historically these surveys have shown aggregate brand value to fall within the range of 15% to 20% of the market value of their parent companies.  However, the last two surveys by Millward Brown have been a lot more aggressive – showing aggregate brand value of the top 100 brands in the range 30% to 35% of market value of their parent companies.  Brand Finance and Interbrand’s data is still closer to 20%.

The divergence of opinion between the three surveys is particularly evident at the individual brand level:

  • There are only 8 brands common across the three top 20 lists (Apple, Coca-Cola, GE, Google, HP, IBM, McDonald’s and Microsoft) and only 40 brands common across the three top 100 lists
  • Within the top 20 brands that were common to all three lists, the valuation attributed to individual brands was greater than a factor of 2x in 50% of the cases
  • The high/low estimates of brand value were particularly marked for Apple (high/low estimates differed by 5.4x), Amazon and Google (3.5x), McDonald’s (3.3x), HSBC (2.7x), IBM (2.6x), Microsoft, Nokia and UPS (2.3x)
  • Within these top 20 common brands, Millward Brown’s estimate of the value of the individual brands was highest for 10 of the brands and the lowest for 5 of the brands;  Interbrand’s estimate was highest for 8 and lowest for 7;  Brand Finance’s was highest for 2 and lowest for 8

I am grateful to these three agencies for having the courage to publish their estimates.  What are the chances that they could be persuaded to get in a room together with the goal of thrashing out a “consensus estimate” for the value of each of the brands?


Brand Value – Millward Brown’s 2010 Survey

Today saw the release of Millward Brown’s 2010 survey of the 100 most valuable brands in the world.  Their press release focused on the strong performance of technology companies in the list, and the fact that the aggregate value of the 100 brands exceeded $2 trillion for the first time and was 4% higher than in 2009.

A more accurate comparison is the 91 brands that appeared in the top 100 list in both years – these had an aggregate value of $1.92 trillion – up 2% from 2009.

The 63 brands that belonged to publicly traded companies accounted for $1.51 trillion in brand value, up 1% from their aggregate brand value in 2009.

For me, the interesting statistic is that the market value of these 62 companies (P&G has two brands in the the top 100) rose by 34% over the past year – and the S&P 500 by 36%.

This suggests that the companies with strong brands actually lagged the broader market by a small margin and contradicts Millward Brown’s conclusion that “strong brands proved their resilience in a recession” (that message was relevant to the 2009 survey which had shown brand value rising to 41% of market value).  The quotes in the press release about how the data demonstrates the growing importance of brands is contradicted by the fact that brand value fell as a percentage of market value from 41% to 31% of market value over the past year (or from 29% to 24% of total economic value).

I applaud Millward Brown’s effort to generate these estimates of brand value but I wish that their interest in promoting the power of brands did not cloud their interpretation of the data, nor blind them to some obviously implausible results.  To wit:

  • Marlboro has a brand value that exceeds the total enterprise value of its parent (Altria) by 10% (implying that all of Altria’s assets – including the Virginia Slims, Parliament and Skoal brands – have no financial value)
  • Google is again #1 with a brand value estimated at an implausible 80% of Google’s $140 billion in total enterprise value (meaning that all Google’s patents and other intellectual property represent less than 20% of the company’s value)
  • Similar story at Accenture where the brand value is over 60% of the total enterprise value (leaving relatively little value to be attributed to the intellectual property and business processes for which the company is famous)

Once again, I find that the information in the aggregate data is more interesting (and, perhaps, reliable) than the specific value attributed to individual brands.

While each of the main brand league tables does a good job of internal consistency from year to year, it is hard not to notice the very significant diferences between the values that Interbrand, Brand Finance and Millward Brown ascribe to individual brands.  Here are some of the more egregious examples from the 2010 league table:

  • Apple is given a brand value over 5x what Brand Finance and Interbrand estimated the brand to be worth
  • Shell and BP (added to Millward Brown’s list for the first time this year) are valued 4x higher than they were in the Interbrand list 6 months ago
  • Google and McDonalds are valued at more than 3x what Brand Finance and Interbrand considered these brand to be worth
  • Amazon and Oracle receive valuations twice as high as those given by Interbrand and Brand Finance
  • Samsung, the brand with the largest increase in brand value (up 80% versus the 2009 Millward Brown survey), is still valued at 40% below what both Brand Finance and Interbrand believe the brand to be worth

My take on all of this is that brand valuation is still in its infancy as a discipline.  The levels of subjectivity are still frighteningly high concerning individual brands and even industry sectors (Millward Brown is clearly bullish on the role of brand in oil and gas, while Brand Finance is bullish on brand’s role in financial services).  My conclusion is that we should use the data from these league tables to make general points about the economic siginificance of brands but we should be very wary about the individual data points.


The Tyranny of Perfection

I am tired of hearing marketers say “it is impossible to assign a precise value to brands.”  I agree.  But I do not accept that marketers are therefore absolved from any responsibility for putting some financial parameters around the signficance of brands.

Perfection and precision may be impossible but this is a topic on which I am certain that being “roughly right” is a worthy goal to aim for.

The tragic irony is that the same marketers who maintain that brands cannot be accurately valued are often the same people who insist on saying that ”brand are assets.”  I say “show me the money” – literally.  Because for finance folk (and particularly accountants) an asset is defined as “a resource controlled by the corporation and from which future economic benefits are expected to flow.”  Our bluff has been called.  We have a choice:

  • We can either acknowledge that we are just using the term “asset” in a loosey-goosey way (a.k.a “marketing speak”); or
  • We can try to say something concrete about the future economic benefits that flow from brands

One small step in the right direction is to develop some “rules of thumb” for the range of value added that brands provide across different industry categories.  Analysis of the Interbrand, Millward Brown and Brand Finance league tables shows that brands may represent less than 5% of the market value of one of the oil & gas majors, around 10% for a bank or insurer, around 15% for a telco, but 35% or more of the market value of a consumer goods company.

Does this give a “precise numeric valuation” for a brand?  No – but it does give finance folk a compelling reason why they might want to pay greater attention to brands.

Let’s not let the “tyranny of perfection” be an excuse for not making any effort at all.


“What is the Value/ROI of/on [X]?”

Such a seemingly simple question.  But when the [X] is marketing, branding or social media, it is best to consider what the motive is behind the question.  My experience is that the question is actually about one of three issues:

  • The first is alignment – are marketers serious about trying to make a contribution to the success of the business?
  • The second is relevance – how significant a business asset is brand/identity?
  • The third is measurement – how should the effectiveness of marketing be measured?

As a rule of thumb, at least 80% of the time, it is the first two issues that lie behind the request for demonstrating the ROI on marketing spend, or for a brand valuation.  Responding to the request at face value is therefore a mistake because a ROI or valuation model will not address the underlying concern about marketing’s lack of alignment with business strategy, and skepticism about the significance of the impact that brand/identity can exert on overall business value.

Finance people are not being deliberately difficult when they ask the question – they are genuinely unsure about whether marketing, branding and identity matter.  They inhabit a Vulcan world of rational economic maximization in which all decisions are based on a sober assessment of functional performance and price.  They therefore have real difficulty in understanding why all this talk about positioning, identity and brand essence is relevant to the business.

In many cases, therefore, the best response to the Value/ROI question is to draw an influence diagram to illustrate the ways in which identity, branding and marketing add to the value of the business.  This turns the conversation into a productive, strategic discussion about the sources of customer value and the role of identity, branding and marketing in enhancing the perceived attractiveness of the company’s products and services.

In a minority of cases, the Value/ROI question genuinely is a question the third issue – measurement – and therefore requires a numeric response.  But before you can determine what kind of measurement is relevant, I believe you need to further clarify the question on two dimensions:

  • Are we looking for quantification in terms of customer value or financial value?
  • Are we primarily interested in the short term or the longer term?

If the interest is short term and financial, then you genuinely do need to measure ROI.  If it is long term and financial, you need to perform some kind of valuation.  But if the interest is in the extent of the customer preference we enjoy, then your answer should not involve financial numbers at all – your numbers should be to do with client acquisitions, engagement scores, average purchase frequency, willingness to recommend, brand equity and a host of other measures of customer preference and behavior.

There are multiple motives that can provoke the question “what is the Value/ROI of/on [X] ?” and a formal valuation is only an effective response in a minority of the cases.


What is the Value of Identity?

Why are school teachers paid less than bankers?  Is it that their work is less valuable?  Is it that their skills are less unique?  Or is it that it is harder to prove the connection between their work and the value that is generated?

Why are designers paid less then management consultants?  Is it that identity is less valuable than strategy?  Is it that design skills are less unique than consulting skills?  Or is it that it is harder to prove the connection between identity and business value than between consulting advice and business value?

Being a reformed finance person, I like to think about these issues in terms of the drivers of financial value – profit, growth, risk and time frame.   The market likes profits – and it likes them to be growing; and it likes them to be certain; and it likes them to be generated sooner rather than later.

This casts some light on why, in my schoolteacher/designer vs. banker/management consultant analogy, the problem might not actually be with an insufficient value is placed on what school teachers and designers deliver.   The problem may be that the outcome of their work is too variable, occurs too far into the future, and is too difficult to link specifically to their work.  Any one of these factors causes the discount rate on your work to rise, and therefore its market value to fall.  The fact that all three problems affect the work of school teachers and designers is a good explanation for why the salaries they command are relatively low.

Turning to the title of this post, the issue with valuing identity is that the judgement of its effectiveness is currently rather subjective; the impact of changes in identity may take a while to show up; and it may be hard to demonstrate the causal relationship in a definitive way.

So the likely scenario is that the market will place a low value on identity.  Currently the design community focuses on arguing about the scale of the value they deliver (profit).  Maybe they should focus more on shortening the time frame and reducing the perceived riskiness of the impact of their work?  That would increase its market value.


Is Brand Really “Our Most Valuable Asset”?

The statement that “our brand is our most valuable asset” appears almost as frequently as the statement “our people are our most valuable asset.”  But they cannot both be right, surely?

Many people dismiss both statements as pure pablum – soothing words uttered by senior management without meaningful content.  In some ways I am tempted to agree.  If the statements could be re-phrased as “people would not buy our products/do business with us if they thought we were untrustworthy” and “this company would fail if our employees did not show up for work,” then their utter banality would be revealed.

However, the popularity of the statements makes me believe that, at least some of the time, something more profound is being said.  In an environment in which the majority of business value is represented by intangible assets (that is, things other than bricks and mortar, inventory and cash), understanding the nature of those assets is a critically important business issue.

“People are our most valuable asset” is self-evidently true for companies that are talent-driven (professional services firms, research-based companies, sports teams, media properties).  It is the ingenuity of a small group of people that truly drives the value of the business (think Steve Jobs or Larry Fink) .

So, in what sense – and in which industries – might it be true that “brands are our most valuable assets” ?

The sense in which the phrase is insightful is when “brand” is used to mean “our perceived uniqueness in the minds of our customers” and not simply “reputation.”   This was the meaning that John Stuart, chairman of Quaker, had in mind when he made his famous remark that “if this company was split up, I would give you the land and bricks and mortar, and I would take the brands and trade marks, and I would fare better than you.”

The industries in which “perceived uniqueness in the minds of customers” is truly the most important asset of the business are consumer industries (alcohol, cars, electronics, entertainment, fashion, retail) in which brands are a form of self expression for consumers; or “distress purchase” industries (insurance, financial services, medical products, certain technology products) in which consumer preference is driven by loss aversion.

It is hard to think of a B2B industry in which it is true that “brand is our most important asset.”  Possibly certain types of professional services?  Suggestions welcome.


Brand Valuation – 2010 Brand Finance Report

I am just getting round to reviewing Brand Finance’s 2010 list of the world’s 500 most valuable brands that they published in mid February.

As always, I appreciate the extra depth that Brand Finance provides in its report versus those of Interbrand and Millward Brown – the list covers the top 500 brands (vs. 100); provides data on market value of the parent companies: and gives explicit information on the perceived riskiness of each brand (via the brand rating score).

The headline summary is as follows:

  • The brand value of the top 100 brands rose by 23% to reach $1.50 trillion, driven by a resurgence in the brand values of many financial services companies
  • You now need a brand value of over $7.9 billion to make it into Brand Finance’s top 100 brands (up from $6.2 billion last year)
  • WalMart still tops the Brand Finance list (it does not even feature in Interbrand’s top 100)
  • The next five brands are common to the Interbrand and Millward Brown lists – Google, Coca-Cola, IBM, Microsoft and GE
  • Based on Brand Finance’s data (I have yet to replicate this), the total economic value of the parent companies of the top 100 brands fell by 4% to $8.51 trillion so brand value now represents 17.6% of total economic value (up from 13.7% last year)
  • Based on the data for all 500 brands, brand value represented 15.4% of the total economic value of their parent companies (up from 14.2% last year)

As always, I find the aggregate data a very helpful reminder of the economic significance of brands.   I will report back with more observations at the sector level in a future post – as in previous years, Brand Finance seems to be believe in a highly influential role for brands in financial services.


Marketing Performance Measurement

Another day, another request (relayed via an agency) for a brand valuation.  As best I can tell, the client’s interest in brand valuation is purely a function of the desire to prove that marketing is important.  Like many others, this client appears to believe that the business case for marketing and the demands for marketing accountability will all be met by a brand valuation.

Regular readers of this blog will know why I consider this belief to be misguided.  Others with the desire to find out can review the posts and articles in the brand valuation section of the topics tab of this website.

If brand valuation is not the answer, then what is?  Well, the answer is a function of the question.  In my experience, there are four big questions as regards the measurement of marketing performance.  The first step towards demonstrating marketing accountability is working out which of the four questions you are really being asked.

The four questions populate the four quadrants of a 2×2 matrix.  On one axis is the focus – customer perspective vs. financial perspective.  On the other axis is the time frame – short term (next 12 months) or long term.  All important questions to do with marketing accountability and measurement fall into one of these four quadrants.

The four questions can be articulated as follows:

  • How do our customers behave? (customer perspective/short term)
  • What is the impact of marketing on current sales and profit? (financial perspective/short term)
  • How strong is our franchise with customers? (customer perspective/long term)
  • What is the impact of marketing on our business value? (financial perspective/long term)

All four questions are worthy of study – and there are specific measurement techniques appropriate to each.  Brand valuation is a partial answer to one of them (the financial perspective/long term one).


Uncovering the Value of Brands

While going through my research archives looking for something else, I rediscovered a piece of McKinsey research from late 1996 with this title.  It was a meta-study of 27 individual studies that examined the importance of brand as a driver of purchase behavior across a number of business categories.

Their finding was that, on average across the B2B and B2C markets studied, brand accounted for 18% of the total purchase decision.  The figure ranged from 3-12% for consumer purchases of computers (3 US studies) to 36-39% for consumer purchases of computers (3 European studies).

Their research also revealed that, in 17 of the 27 studies, there was a “brand loyal” segment for whom brand was the determinant factor in their purchase decision.  The size of this segement varied from 10% in retail banking to 35% in telecoms, with an average of 21% across the 17 studies.

It is interesting that similar results about the economic significance of brands are produced by a variety of different approaches.


The 100 Hardest Working Brands

Perhaps recognizing that “the world’s most valuable brands” theme is becoming over-worked, CoreBrand released a brand league table this week with a twist: their league table contains only corporate brands, and ranks them according to the percentage of market capitalization represented by the corporate brand, not by actual value.

It is a potentially interesting approach.  Leaving aside the methodological challenges inherent in separating out the value of Coca-Cola the corporate brand from Coca-Cola the product brand (the majority of the companies on the list are monobrands – meaning that the product brand and the corporate brand are the same), it would be fascinating to see some data on the extent to which branding at the corporate level is adding value above and beyond what is being done at the product level.  And whether the scale of this contribution varies by industry.

Unfortunately CoreBrand list consists of nothing more than the ordinal ranking of 100 corporate brands on two bases:

  • By the percentage of market capitalization represented by the corporate brand
  • By the dollar value of the corporate brand

There is no data on either the actual dollar value of the corporate brands or on the actual percentage of market capitalization that the value of the corporate brand represents.   Readers are left to guess whether corporate brand value is 3% or 30% of overall market capitalization.

It is a missed opportunity to add meaningfully to the debate about brand valuation.  This is a shame since the CoreBrand list is based on two interesting premises:

  • First, that corporate brands matter
  • Second, that it is not so much the absolute value of brands that matters as the proportion that they contribute to overall corporate value

I, for one, would have loved to see some data on the relative importance of corporate brands.  Or some data on how this varies by industry (it is self evident that product brands matter more in certain industries than others – but is this true at the corporate brand level?)

Instead, I am left to scan the list for interesting snippets, such as:

  • Is the Hershey corporate brand (ranked #1) really adding proportionately more value than the Home Depot corporate brand (ranked #39)?
  • Is the Yahoo corporate brand (ranked #40) really working that much harder than the Google corporate brand (ranked #88)?
  • And are those corporate communicators at P&G (ranked #54) really contributing proportionately less than their counterparts at Colgate-Palmolive, Estee Lauder and Avon (ranked at #6, #19 and #43 respectively)?

I suspect that most readers will fail to realize that this is a ranking of corporate brand contribution to overall value, not overall brand value.  Any list that includes Hershey, Coca-Cola, Harley, Campbells and Kelloggs as its top 5 can easily be mistaken for just another brand valuation league table.


The Earnings Split Method of Brand Valuation

I am bothered by the discrepancy in the value of individual brands across the Interbrand, Millward Brown and Brand Finance lists.  I am particularly perplexed as to why the differences between Interbrand and Millward Brown lists (both of whom use the “earnings split” method) are greater than the differences between Interbrand and Brand Finance lists (who use different approaches – Brand Finance uses relief from royalty).

I am grateful to Gabi Salinas’ “International Brand Valuation Manual” for casting some light on the reasons why this might be so – her book documents 16 variants of the “earnings split” approach, making it entirely plausible that variances within the application of a single approach might be greater than variances across different approaches.


The International Brand Valuation Manual

Gabi Salinas (with whom I had the pleasure of working at Brand Finance), now global brand manager at Deloitte Touche Tohmatsu, has just published her magnum opus on the topic of brand valuation.

The book is very thorough and a surprisingly easy read – a testament to Gabi’s ability to focus on the essential details of what is potentially a very dense topic.  It removes much of the mystery that currently surrounds the topic of brand valuation by outlining the core concepts and profiling the different methodologies in use.

Gabi’s obvious passion for the topic shines through.  Most other authors might baulk at the prospect of comparing and contrasting 40 different brand valuation techniques from more than 60 providers – but Gabi has painstakingly collected all this information and spends 180 pages (nearly half the book) reviewing and commenting on each model.

This dogged perseverence gives immense credibility to the other sections of the book in which she provides a higher level summary of the topic.  I would recommend the following three chapters in particular:

  • Chapter 1 – the definition and economic relevance of brands
  • Chapter 4 – summary of the main approaches to brand valuation
  • Chapter 6 – classification of the 40 models reviewed

The book is a hugely valuable resource to anyone with a professional interest in brand valuation (and that is a wide set of audiences).   Despite the worrying frequency of equations with greek letters, the style is very light and the narrative very simple to follow.

For me, the one thing missing from the book is a clearer sense of how brand valuation fits into the broader topic of marketing accountability.  As it says in its title, the book is a “Manual” – it begins from the assumption that brand valuation is a valid goal to pursue, and provides the roadmap for achieving that goal.

Readers of this blog will know that my strong belief is that brand valuation is, with rare exceptions, a false trail for marketers to follow.  It does not provide definitive proof of the value of marketing, and it involves treating the brand as a separable asset of the business (an assumption entirely at odds with marketing’s goal of getting the brand embedded into all aspects of the business).  The uses of brand valuation are technical in nature, and few fall within the purview of marketing.

To be fair, Gabi did not conceive her mandate to be “brand valuation – what’s it for?” – she defines her remit as “brand valuation – how’s it done?”  She has produced a comprehensive overview of the topic and has documented in admirable detail the specifics of the various approaches and models.


Brand Valuation – SEEC Seminar

I led the brand valuation section of the day-long seminar on marketing measurement today.  The seminar was run by Alan Middleton, the pre-eminent marketing professor in Canada and a true force of nature.  It was a huge pleasure to collaborate with someone who is so passionate about his subject, and so voracious in his appetite for new information and perspectives.

The seminar participants were all from the agency side – and all motivated by the desire to upgrade the quality of their interactions with clients so as to evolve from “vendors” into genuine business partners.

They asked some very perceptive questions – but the defining point of my session was the reaction by one of the participants to the process for performing a brand valuation based on the earnings split approach.  He looked at the matrix we had just created of the drivers of the customer purchase decision and the extent to which they were influenced by brand, thought for a while, then commented “this all seems rather squishy to me.”   Exactly.  And in a single word, he articulated the huge concern over the subjective nature of brand valuation.


Brand Valuation – SEEC

Another day, another city, but the song remains the same.

I am presenting at the Schulich Executive Education Center at York University in Toronto tomorrow.  I tried to define the remit of my presentation as brand and customer equity measurement but was asked to focus more narrowly on brand valuation.

Readers of this blog will be familiar with the approach I will take to the topic, and the caution I will sound about thinking of brand valuation as anything other than fodder for cocktail party conversations or a specialist tool to support limited and well-defined transactional needs (most of them having nothing to do with marketing).

Given that the participants are all marketers, I thought I would prepare a workbook that will allow us to generate in class a brand valuation based on the earnings split approach.  It should be a great way to illustrate the variables to which a brand valuation is most sensitive.  I will report back.


Brand Valuation – More on Interbrand 2009

I have now had the chance to look at the latest Interbrand list in some detail.  The results seem plausible – double digit rises in the brand value of Google and Apple, halving of the brand value of Citi and UBS.  Some brands ekeing out gains in value of less than 5%, but many showing declines in the 5 to 10% range.  Net result:  a 5% decline in the aggregate brand value of the top 100 brands to $1.16 trillion.

So far, so good.  The worrying development is the increase in the inconsistency between the Interbrand list and those published by Millward Brown and Brand Finance earlier in the year:

  •  There are only 33 brands that appear on all three top 100 lists this year, down from 45 last year and 46 in 2007
  • The three providers only agree on the direction of the sign change in the value of 6 of the top 20 brands versus their value in 2008
  • The inconsistencies are as great versus the Millward Brown list (compiled using the same “earnings split” methodology as Interbrand) as they are versus the Brand Finance list (compiled using the “relief from royalty” methodology)

On balance, I am glad that these brand league tables exist – they help to highlight the economic significance of brands, even if in the process they also demonstrate that brand valuation is a discipline in its infancy.


Brand Valuation – Interbrand’s 2009 Brand League Table

Interbrand has now released its 2009 league table.  The data shows a very modest decline in the aggregate value of the top 100 brands from $1.22 trillion in 2008 to $1.16 trillion.  The 5% decline contrasts with a 25% decline in the market value of the parent companies and results in a jump in the proportion of brand value to market value from 18% in 2008 to 23% this year.

93 brands are common to the 2009 and 2008 lists – notable departures from the list this year are Merrill Lynch, AIG and ING which together represented over $20 billion of brand value.

86 brands are common to the last 4 years, of which 76 belonged to publicly quoted companies.  Using just this sample set, aggregate brand value was down 4% in absolute dollar terms versus 2008 but rose from 20% to 25% as a proportion of aggregate market value.

Interbrand scores well for internal consistency across the years – each movement in brand value is accompanied by an apparently plausible thumbnail explanation for the rise/decline.

What continues to cause doubt about the reliability of the numbers is the lack of consistency across the three main publishers of brand valuation league tables.  There are only 33 brands that are common to the three lists of the top 100 brands!  25 brands that appear on both the Millward Brown and Brand Finance lists do not feature on the Interbrand list, while Interbrand chooses to include 32 brands that do not appear on either the Millward Brown and Brand Finance lists.

Hence my advice to marketers – use these league tables to support a general assertion about the economic value of brands BUT beware of making any strong assertions about the value of individual brands.  Otherwise you will find yourself explaining why the brand values of Amazon, Apple, BlackBerry, Google, Marlboro and UPS differ by a factor of 2 or more – and why it requires a brand value of “only” $3 billion to crack the Interbrand top 100 list but over $6 billion to make it into either the Millward Brown or Brand Finance top 100.


Brand Valuation – More Grist to the Mill

Interbrand will shortly be publishing its 2009 ranking of the world’s most valuable brands. Unlike Millward Brown and Brand Finance who published their 2009 rankings in the midst of the market meltdown in March, Interbrand has the benefit of publishing at a time of relative market stability (the S&P 500 traded in the range of 900 to 1,000 between May and August) and may therefore attract a little more media attention.

The publication of these league tables is helpful to marketers as it serves to highlight the importance of brands as economic assets.  Despite their obvious flaws (notably the lack of consistency between the values ascribed to individual brands by different providers), the sheer scale of the numbers is impressive – the aggregate value of the top 100 brands is over $1 trillion according to Interbrand and Brand Finance (nearly $2 trillion if you believe Millward Brown) and represents close to 20% of the aggregate market value of their parent companies.

Given that net tangible book value for the S&P 500 represents only 21% of market value, it is nice for marketers to be able to make the sweeping generalization that, in aggregate, brands represent as large a proportion of market value as tangible assets.

As I have noted before, this generalization masks a huge variation in the individual brand values (2% of market value for BP and Shell vs. upwards of 80% for Gucci, Puma and Burberry).


Brand Valuation vs. Brand Evaluation

I am in the process of responding to another RFP that stipulates that brand valuation is one of the deliverables.  Given the context,  it is clear that the client does not mean valuation in its financial sense.  What they appear to want is a methodology for brand evaluation.

I hate to pick nits but it is a source of considerable confusion when a term that has a specific meaning to a financial audience is used in a much broader sense by marketers.  Marketers are often guilty of using financial terminology to describe anything that involves measurement – they overlook the fact that many forms of measurement are non-financial (such as awareness levels, repurchase rates, willingness to recommend and so on).

For that reason, I have found it useful to make the distinction between two forms of brand measurement:

  • Brand evaluation is the discipline of developing a quantitative (but non-financial) understanding of the strengths of a brand on multiple dimensions and with multiple audiences.  The focus of brand evaluation is understanding the level of customer value that the brand generates;
  • Brand valuation is the discipline of determining the proportion of overall business value that is solely due to the impact of the brand on the behavior of key audiences.  The focus of brand valuation is on measuring the level of shareholder value that the brand generates.

Brand evaluation is a discipline that should be embraced by any organization that wants to understand what is driving customer preference and internal engagement.  Brand valuation is a specialist discipline that is of particular value when an organization is contemplating a merger or licensing transaction, or when it is engaged in a trademark dispute.

Despite the popularity of league tables of the world’s most valuable brands produced by Interbrand, Millward Brown and Brand Finance or of the world’s most powerful non-profit brands produced by Cone, the managerial applications of brand valuation are surprisingly limited.  A brand does not become more valuable simply as a result of measuring it.  What actually makes a brand more valuable is when an organization is able to enhance the preference for the brand among its existing audiences, and how to promote the brand to new audiences.  The financial value of a brand is determined by the behavior of its audiences.

Brand evaluation is about strategy and management.  Brand valuation is about accounting.  My beef with brand valuation is that it distracts clients from the more productive task of identifying and measuring the sources of their brand’s value to customers, partners, and employees (brand evaluation) and on generating ideas for how this value can be increased.


Brand Valuation

I am co-hosting a webinar next Tuesday (May 26) on brand valuation as part of the ANA’s Marketing Accountability series so forgive me as I rehearse my position on this topic.

For me, the key points are that brand valuation:

  • Involves valuing the brand as if it were an independent asset of the business
  • Is a specialist discipline with considerable value added to specific commercial contexts
  • Is – contrary to popular belief – NOT a very effective mechanism for demonstrating marketing accountability
  • Is often commissioned for reasons of corporate ego, not business insight

One of the exhibits I am creating for the webinar is “What does it take to get onto the list of the top 100 brands in the world?”  If you believe Interbrand’s data, you need a brand that is worth $3bn to crack the top 100. If you believe Millward Brown and Brand Finance, you need a brand that is worth $6bn (I have pointed out the inconsistency between the agencies in earlier posts so will not dwell on this now…)

For fun, I have decided to work out what kind of a revenue base you require in different industry sectors in order to have your brand appear in the global 100.   The ratio of brand value to revenue depends on two key factors:

  • The relationship between market value and revenue for that sector
  • The proportion of brand value as a percentage of market value for that sector

Using these two variables and a target brand value of $6bn, this is what I found to be the qualifying revenue levels per industry sector:

  • IT – $30bn
  • Healthcare – $34bn
  • Consumer Staples/Durables – $36bn
  • Financials – $77bn
  • Industrials – $130bn
  • Utilities – $175bn
  • Energy – $190bn

Truly it is harder for a camel to pass through the eye of a needle than for an energy company’s brand to make it onto the list of 100 top global brands…

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Should brands be valued?

I am still really bothered by the inconsistency of the latest brand valuation reports from Brand Finance and Millward Brown (see my post of two days ago). In theory, brand valuation should enhance the credibility of marketing and provide the basis for closer collaboration with strategy, finance and sales. In practice, it appears to do neither.

I have already commented on how the credibility of marketing is undermined by the huge variability in the values ascribed to individual brands in the different league tables. My focus today is on why brand valuation fails to promote effective collaboration between the disciplines.

In my experience, brand valuation exercises inevitably prompt the following questions:

  • Are you defining “brand” to include the product itself? Or just as the “moreness” above and beyond the functional product?
  • How exactly are you measuring the proportion of the purchase decision that is solely due to the brand?
  • What is the contribution that Sales makes to the process?
  • How can the value of the brand be rising when the value of the business is falling?
  • If the brand represents a higher proportion of the value of the business, then which of our other assets are getting less valuable?

In my view, the problems all derive from the artificiality of the exercise of valuing a brand separately from the products, services, company or experiences that it embodies. If you believe that strong business performance is a result of the interplay between a number of valuable resources – a good product offer, effective production and distribution systems, strong channel partnerships, motivated salespeople and, yes, a strong brand – does it make sense to value any one of these components in isolation from the others?

The answer is “only under very specific circumstances.” These include acquisitions/disposals, legal disputes, licensing and securitization (for more information, please read my article  “Don’t waste time with brand valuation”). Outside of these contexts, brand valuation rarely delivers the expected benefits.


Brand Valuation, Schmaluation

Last week two brand valuation agencies released their 2009 league tables of the 100 most valuation brands in the world. It is depressing to see that only 58 brands are common to the two lists.  How are we meant to take the topic of brand valuation seriously when two of the prominent agencies in this field disagree so widely about which are the most valuable brands in the world?

My general stance is to applaud anyone who tries to put financial or other business parameters around brands as a way to communicate the significance of their contribution to business performance. But I have to wonder whether the topic of brand valuation is not actually doing a disservice to the cause of marketing accountability by revealing such a lack of consistency in the results.

This inconsistency is everywhere – which brands make it into the top 100 list; what the value is of a specific brand (for 15 brands, this differs by a factor of more than 2 between the two lists); even whether the value of a brand has gone up or down over the past 12 months (for 21 brands, the two lists disagree about whether brand value increased or decreased).

The good news is that brand valuation is largely irrelevant to the issue of marketing accountability – see my earlier post on “Measurement is not the same as Accountability.”

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