Magazine article Management Today

Branded by Number

Magazine article Management Today

Branded by Number

Article excerpt

As intangible assets become more important as the measure of a company's worth, brand valuation techniques have spread. But how reliable are such assessments? asks Alan Mitchell

Brand beauty may be in eye of the beholder-but every business leader accepts that nowadays the values placed on brands are increasingly equated to company value. Therefore brand assessment is an exercise attracting growing attention. The latest judgment, from Interbrand, declares that McDonald's has toppled Coca-Cola from pole position as the world's greatest brand. But the value of such a proclamation is questionable, expecially as Coke's sales and profits are twice those of the burger chain.

Most brand valuation techniques work on the simple and uncontroversial assumption that a brand is an asset which, if it were hired out, could generate a royalty for the licence-holder. The size of that royalty would reflect the value of its income, and the value of the brand would reflect the size of that royalty discounted over a future period. Some surveys, like Interbrand's, go further. To judge the security of that future revenue stream, they score brands on a series of tests such as international scope and trade mark protection.

Many similar techniques combine hard measures such as sales and margins with softer indicators of brand health such as brand awareness. It's then a matter of judgment as to how many indicators you choose to measure and what relative weights to give them. And to attract attention, they have to be crunched into a single brand value number. In Interbrand's The World's Greatest Brands, the composite score is made up of four measures: weight (dominance), length (stretch), breadth of franchise in terms of age spread (consumer type), and finally depth (degree of customer commitment to the brand).

There are four problems here. First, if you believe what is coming out of some business schools, the brand value issue is a red herring. It is customer equity, not brand equity that you ought to be focusing on, argues Robert Blattberg, professor of retailing at Northwest University's Kellogg Graduate School. 'Brands don't create wealth. Customers do.' Second, it is very difficult to rigorously apply existing techniques to umbrella brands or corporate brands, where the brand and the total company are virtually indistinguishable. …

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