The founder of a major telco asked me recently, "How do I value my brand and is it worth doing?". It's a tough question to answer and it's a question most marketeers get asked at some point in their career. To my knowledge there is no internationally accepted accounting method of valuing a brand. A quick search revealed at least 3 suggested methods under IFRS3 (International Financial Reporting Standards) for valuing a brand as an asset. But as a marketeer where do you start?
There are 3 companies that produce brand valuations in the form of league tables – Brand Finance, Interbrand and BrandZ (part of WPP). My view on these for many years has been that they are of limited value – great for publicity but not that useful for brand building or, more importantly, as a predictor of future financial performance. But hey, maybe I am wrong. So I decided to spend a morning digging around in them to see if I could make sense of what they were telling me and more importantly my clients. What's clear from my cursory look is that when you compare the data across the 3 methods there are wide variations and strange fluctuations. It seemed interesting and I thought it worth sharing.
First lots of health warnings – this is a quick look and is meant to trigger debate (based on what I have just learnt I think we will now do a more robust analysis at BrandPie over the next couple of months and publish our thoughts).
I started by looking at Shell, one of my first clients as a consultant. Shell is a well established company with a consistent performance over a long period of time. You would think that the valuations would be pretty similar. Not so. In 2014 BrandZ valued the Shell brand at $19b, Interbrand $6.2b and BrandFinance $30.6b. At the time Shell's market cap was around $227b – so Ben van Beurden is left thinking the Shell brand is worth somewhere between 3% and 13.4% of the company's value.
What about Coca-Cola, another very solid global brand with great long term performance? A bit better here: BrandZ $80.6b, Interbrand $81b, then Brand Finance comes in with $35.7b. What's going on? The market cap of Coca-Cola at this point was around $188b so here the brand is worth somewhere between 18.9% and 43%. By any accounting standard that is a pretty wild spread.
What about Vodafone? A company I know well from my days at WPP when I was CEO of Team Vodafone. Even stranger. BrandZ $36.2b, Brand Finance $27.2b but on the Interbrand survey Vodafone doesn't appear in the top 100 – which means according to Interbrand it has a value of less than $4b. At the time the market cap was around $90b; so here we have a brand valued at somewhere between 4.4% and 40%. I can imagine Vittorio Colao scratching his head on that data.
I decided to take a different approach and look at the trend data for one of the league tables and see if that made more sense. I picked BrandZ (I helped create the name and identity so I have a soft spot for it). I picked Apple and Google then went back 5 years. They have been vying for the top spot so it should be interesting. BrandZ use the Millward Brown consumer data in their valuation algorithm. So that gives us a real consumer view on the value they place on the brand.
The Google data is interesting – in 2010 the brand value was $114b and company was valued at $192b, so the brand was worth 59% of market cap. In 2015 it was valued at $173b and the market cap was around $474b, so now the brand is worth 36.4% of the market cap. So have the brand team at Google done a good job in building brand value? Hard to work out from these numbers. The value has increased but it has dropped dramatically as a % of the company's market cap.
On Apple the story is slightly different. In 2010 the brand value was $84b and in 2015 $246b. Over the same period the market cap went from $299b to $658b – making Apple the world's most valuable company. The brand went from being 28.1% to 37.3% of the company's value. The brand team appear to have done a stellar job – or was it the iPhone 6 and the AppleWatch?
What caught my eye though was the 2014 data. BrandZ calculated the Apple brand to be worth $147b, a big drop from 2013 where it was valued at $185b. So in 2014 the brand valuation appeared to be predicting Apple was in trouble. 2014 turned out to be a record year for Apple. Their market cap peaked at $750b and they made record sales. As a result the brand was worth 19.6% of the business value for just one year – in 2015 it leaped backed to being 37.3%.
After more than 30 years in business and having worked with some of the smartest researchers in the marketing sector, I know you can interpret data in many ways. I am sure the folks at Interbrand, BrandFinance and BrandZ can all explain the variances I have highlighted.
These 3 companies have all clearly done great work in getting attention for brand valuation. But at the moment I am still struggling to make sense of it.
If the accounting profession were to produce a brand valuation process that led to the creation of an acceptable international standard than I for one would see that as progress. In this day and age of Big Data this must surely be possible.