Brand valuation: A strategic brand management framework to unlock growth for your business
By Mike Rocha
A difference of opinion
Choose wisely, and a brand valuation exercise can help you unlock growth for your business, but with so many differences in brand values in published rankings such as Interbrand’s Best Global Brands, it can be hard to know how to get started and who to work with.
A recent article in The Economist highlighted, as others have before, some rather wide discrepancies in the valuation opinions of certain brands in our ranking compared to those published by the likes of Millward Brown, for example.
Since Interbrand pioneered the original valuation process more than 20 years ago, other organizations have understandably seized the opportunity to enter this market. If nothing else, it’s an indicator of how important brand management is—and confirmation that brand valuation is indeed a useful tool for driving growth.
When comparing the values determined by different consultancies, it is important to bear in mind that a value is essentially an opinion (as opposed to an actual price achieved in a transaction) arrived at through research and analysis, and evaluated through a particular methodological lens. Because all methodologies are different, of course the valuations will vary, and this creates an inevitable degree of confusion.
We see similar differences in values all the time in other contexts, for example, the world of equity analysts (the people who are paid by banks and stockbrokers to predict the future share prices of stocks around the world and encourage you to buy or sell these stocks). In mid-September 2014, using Thomson Reuters data, we analyzed the target prices of all the equity analysts following the stocks of the top 10 brands in our ranking (including megabrands like Apple, Google, and Coca-Cola).
Looking at the average target price and comparing that with the minimum and maximum target prices we found that the average spread from the mean across all ten stocks was 20 percent. The same analysis of the three published brand values cited by The Economist gives an average spread of 35 percent. The maximum spread among the equity analysts was 51 percent compared to 67 percent for the brand values. Looking at Apple, we found a 170 percent difference between the highest and lowest target price among the 44 equity analysts covered by our analysis. That is quite a difference of opinion.
Undoubtedly, if we replicated this analysis across a broader range of stocks, from any stock market across the globe, we would find similar, and significant, differences of opinion. And yet, whilst there have been calls to restrain the more aggressive selling practices of these analysts, the entire practice and profession of equity analysis has not been called into question as a result of a lack of agreement among practitioners. Perhaps the difference is because brand valuation is newer, practiced by few and is, consequently, not adequately understood.
Valuation (of any asset or business, not just brands) is both an art and a science, based on quantitative and qualitative assessment. The science is in the measurement and the art is in the interpretation. Of course, valuing a brand is not as straightforward as valuing a tangible asset. The valuers view on the key levers of brand value creation (in Interbrand’s case, the role of the brand in driving choice (Role of Brand) and its competitive strength (Brand Strength)) will determine what will be measured, but not every firm is looking at the same factors or giving certain factors the same weight in their methodologies. With so much variation in methodology and considering all that is open to the analyst’s interpretation, differences of opinion are bound to arise. Yet, it is perfectly reasonable to expect different organizations to have their own opinions on how brands should be valued—and inevitable that people will perceive value differently.
So, if the best known brand valuation approaches are more or less valid, which one should you rely on?
Assuming you are looking for a brand valuation to identify opportunities to unlock growth for your business, or to evaluate a potential change in brand strategy, what criteria should you use to base your choice of methodology and valuer on? In our view, it is essential to work with a holistic, forward-looking approach that takes into consideration a wide range of data sources and inputs (rather than only relying on the “rear-view mirror” that market research delivers), considers the strength of the brand inside and outside the organization, and is capable of delivering actionable insights and a clear roadmap of quick wins and longer term activities to unlock growth.
Interbrand’s methodology was the first to be certified to ISO standards and values brands using methodologies that are based on established and accepted business practices for the valuation of other assets.