Why brand valuation is in a spin

As branding has become more important, a whole industry has prospered by charting the intangible ups and downs of image. But what does the league table merry-go-round contribute?

by Oliver Bennett
Last Updated: 30 Mar 2016

Artisanal. Authentic. Crafted. Heritage. Passionate. All words of warmth associated with contemporary branding, and applied willy-nilly - even promiscuously - to myriad modern products and services. But what are they worth, and how much value do such florid descriptions add? What if you played word association with the art of 'brand valuation' itself? It might go more like this: overstated, overrated, mistrusted, inflated. That's the kind of place the brand valuation industry is in, and it's causing a lot of confusion.

The big three companies - Interbrand, Brand Finance and Millward Brown (part of WPP) - all produce brand valuation leagues. Additionally, there are tables from lesser players (about 'three or four more', as Peter Walshe, director of Millward Brown's BrandZ study puts it) and smaller firms too. In the past five years, as intangibles have become at least as important financially as physical assets, the popularity of brand valuation has surged. With it has come a tide of scepticism.

It's an odd pass for the branding industry. For as products and services converge, branding has become more important - after all, why else would someone choose your multi-platformed company over another, were it not for its personality? Add to the mix the effects of the internet, social media and globalisation, all of which have created the chance for brands to take huge leaps in ever-shorter times, and it would appear to be a golden age for the art of branding. So it's curious that the brand valuers seem to be losing the very trust that they aim to marshal for their clients.

True, on one level such league tables are fine: in line with the wider appetite for charts, statistics and infographics - fuel for a data hungry world. At the top of most brand valuation tables are the biggies - Apple, Google, IBM, Visa - and like the Premier League, harmless fun can be had enjoying their jockeying for place. And brand valuation is important by any measure: to work out a company's real value, to sally forth with confidence for mergers and acquisitions, and to solve knotty stuff such as intellectual property disputes. But there's growing disquiet about their reliability, both within and without the industry. 'These tables often come across as objective truths,' says Simon Cole of Reputation Dividend. 'But they can sometimes be poorly informed, crudely subjective estimates. The idea that they represent reality is dangerous, and they're devaluing what is good and helpful about brand valuation.' They may even, adds Cole, be manipulative. 'It is not unknown that compilers have sometimes had to deal with pressure for more "favourable" valuations when it's been in the interest of individuals in client companies who may be bonused.'

Moreover, these tables contribute to a confusing babel of competing (and conflicting) information, fuelled by an obscure and internalised world of calculations and hypotheses. 'Most large communication and insight groups have their own versions and methodologies leading to contradictory outcomes,' says Chris Pearce of marketing consultancy TMW Unlimited. 'These beautifully presented, bloated reports have more value in showcasing the services of these groups, rather than the brand owners they profess to serve.'

Such criticisms roll on: data is used to massage clients' egos; to create false value; and generally contribute to a lack of trust. Christy Stewart-Smith of marketing agency The Gate argues they undermine credibility: 'Ludicrous: like five firms of accountants each peddling different standards in the hope of achieving market domination.' They may even betray a certain cynicism: Christof Binder of Swiss trademark company Markables, which has released a report entitled 'Brand value rankings - are they blessing or curse?' is such a critic. 'They're hypothetical much of the time and used to enable businesses to add extra percentages to royalty rates.' And the media (that's us) are all too often complicit, reporting the 'brand val' hit parade with wide-eyed credulity.

The issue came to a head last October when a debate at the Festival of Marketing pitted executives from the aforementioned 'big three' against forthright columnist Mark Ritson, who suggested that brand valuation was 'bullshit'. In a close contest, the audience fell on his side: 52% 'bullshit' to 48% 'brilliant'. Was this indicative of a critical shift? Yes, thinks Cole, a former director at Interbrand. 'Much of the problem lies in the use of brand values as financial instruments,' he says, who's now impatient with 'meaningless debates about which valuation technique is best' and league tables that are 'less concerned with why brands are valuable and more with how valuable they are'. Paradoxically, brand valuation has itself acquired reputational difficulties.

The UK has led the way in brand valuation: indeed, the business had its 'year zero' moment here in 1988 when Rank Hovis McDougall carried out a prototype brand valuation to ward off a hostile takeover bid, claiming the true value of Hovis (to Brits, a warm, nostalgia-infused brand) hadn't been taken into account. The company Interbrand revalued the company and 'brand val' became part of the landscape. 

'Brand valuation was born of confusion in the first place,' says Rita Clifton, the doyenne of branding, former UK chair of Interbrand and now chair of BrandCap, which positions branding to the boardroom. 'There was such frustration as companies were worth a lot more,' she says, and tables gave these 'intangibles a value expressed in the language of accountancy'. Yes, says Clifton, there is 'league table-itis' - but she emphasises that the principle of valuing brands remains vital. As a result of brand valuation, accountants - rather than thinking in terms of 'goodwill' - have changed their methods for the good, adding cuddly, cultural factors to cold number-crunching.

But as the industry has developed, valuations have become less reliable, reckons Binder, who believes that the tables are now predominantly about gaining publicity and have become 'a marketing add-on' with huge discrepancies. 'To take a classic example, Interbrand valued the Nokia brand at $7.4bn in 2013, while the acquirer Microsoft valued it at $157m,' he says. 'Why such a difference?' It's a live issue, says Robert Haigh of Brand Finance, which publishes the Brand Strength Index: 'We haven't had direct pressure (from clients), brand valuation is not a legal standard, and people love league tables and charts.' At the same time, he adds, 'We have to be mindful.'

Perhaps the brand valuation tables are driven by the contemporary need to provide gleaming presentations or even what star statistician Edward Tufte has called 'chart junk': professional-looking, pseudo-scientific imagery. 'We're living in an era where analytics is everything,' says Jonathan Gabay, a brand consultant and author of Brand Psychology. 'But our problem is that brand valuation is often a huge assumption.' Every year Gabay is invited to comment on the 'most popular brand of the year', 'and it's mostly in response to league tables. And every year I think: it's time the industry stuck to one definitive method.'

And with the proliferation has come devaluation. Brand Finance's heavyweight February report takes a team of about 10-12 people nine months. Cole remembers spending nearly six months on one valuation. But as the market has expanded, brand val has become cheaper, and faster. 'A typical blue-chip brand valuation could cost in the hundreds of thousands of dollars,' says Cole. 'Now it can be done for a fraction of that.'

How are brand valuations done? It's a heady mix of financial research and mathematical formulae, breaking down into three main approaches: cost, market and income. Binder says, 'Most of the methodologies have merits, and are internally consistent.' Some are proprietary, such as BrandZ's brand dynamic research. But the differing methods, and results, invite sniping. Haigh thinks one rival is 'very opaque. As far as we can tell it makes valuations from thin air.' Another branding professional derides a competitor thus: 'A piece of fluff making it look as if there's grand science behind it.' And Walshe says, 'You can find there is an element of vanity publishing.'

In the 1990s, when brand valuation was fresh, it emphasised the importance of branding to business. Valuation tables helped to elevate branding from being a somewhat esoteric corner of the marketing department and into the company's higher echelons. 'They've really helped to integrate branding into the boardroom rather than just being a marketing add-on,' says Clifton. 'Branding should be part of business strategy. It's a tool to help make a business successful and sustainable.' Millward Brown estimates that over 30% of any business's shareholder value is driven by brand, and that well-stewarded brands grow businesses three times faster than average.

So branding is more habituated in company life, but as Binder put it, 'If marketing really wants to be in the boardroom, then brand valuations surely have to be more accurate.' Defending the variations, Robert Haigh says that brand valuations are 'like financial analytics. They're indicative. They're not to be relied upon.' As his colleague David Haigh has written: 'No one is surprised that valuation opinions for other assets vary widely, so why should brand valuers be expected to come to identical conclusions?'

Hovering over the current debate is a wider conversation about how we relate to brands. With medieval roots, modern branding arrived with consumer goods in the 19th century. Strategists built on the human 'relationship' with products and by the mid-20th century brands were seen in terms of packaging, marketing and advertising.

Volkswagen's brand valuation dropped after the emissions scandal, dragging ‘Brand Germany’ down with it 

Now brands are part of the national conversation. And with that has come a shift: everything, including ourselves, can be considered a brand. Cities, countries, football teams (Arsenal's brand is worth £423m, says Brand Finance). Donald Trump's brand value has been estimated by Forbes at £3bn. 'Even the British Army talks about its brand,' says Cole. And if everything is a brand, everything needs valuation; particularly in an era where start-ups consider branding as part of an oven-ready approach to business, linked to contact and connection rather than advertising and marketing. 'What brand managers need to measure most is brand experience,' says Rebecca Faulkner of marketing agency Rufus Leonard, and they're failing to do so.

Gabay thinks that while brands were once a way to create market difference, this relationship has changed. 'We're living in an era where people are searching for identity but it's of the self, not of the company,' he says. 'So there's a growing lack of brand empathy and affinity.' Also, brand valuations can go down, with serious knock-on effects. After the Volkswagen emissions scandal earlier this year, Brand Finance valued VW's brand at 4% lower, dragging Brand Germany (efficiency, probity, reliability) with it.

And an untended brand can be imperilled if it doesn't exist above the products that give it life. 'Look at Nokia, Palm, Blackberry,' says Clifton. 'If a brand is too attached to a particular product it's problematic.' No brand is sacred, she says. 'You can become a Kodak.' There has been an attempt to standardise brand valuation. International Standards Organisation (ISO) 10668 was constituted in 2010 to converge brand values. But it's seen as toothless, and unwieldy. 'It's trying to outline the minimum requirements for brand valuation including admirable parameters like transparency, validity, reliability, objectivity,' says Binder.

But as Robert Haigh says, it's not well-known enough, floundering in a sector that is being internationalised. 'In some countries brand valuation isn't yet well known, but in China they're really taking to it with great enthusiasm,' he says. Talking of which, Brand Finance's league tables are already influenced by Chinese brands. 'A month ago the president said that he wanted to move from "made in China" to "branded in China",' adds Haigh. Alibaba and Tencent in China, India's Flipkart - there's potential for brand valuation tables to expand globally, sharpening the standardisation argument.

OK. Is there a problem that needs fixing? 'Yes,' says Cole, rhetorically. 'But is it worth all the effort? I don't know.' As brand valuation is necessary, and takes place thousand of times each year, it should be reliable and accurate. 'Brand valuations need credibility, which arises from credentials, accreditation, regulation, standards,' says Binder, 'not from proprietary methodologies or PR battles.' Take back control, says Cole. 'Let's get some objectivity back into brand valuation and use it for the purpose it's best suited - building and managing those critical assets we know and love as brands.'


Interbrand's Best Global Brands
Consultancy Interbrand's Best Global Brands is one of the top annual lists, since it began in 1979. A division of Omnicom, Interbrand has offices in 27 countries and the company claims to have invented the term Wi-Fi in 1999. Interbrand's methodology is also the first of its kind to be ISO certified.

Brand Finance's Global 500
Brand Finance, 20 years old in 2016, was set up with the aim of 'bridging the gap between marketing and finance' and each February releases its Global 500. Its methodology includes the '4Ms' - Measuring, Managing, Maximising and Monitoring - and it values over 3,500 brands annually. It also offers other tables including the Nation Brands 100 and the Football 50.

Millward Brown's BrandZ Top 100 Most Valuable Global Brands
For a decade, this division of WPP has offered rankings under its BrandZ Top 100 Most Valuable Global Brands banner. In 2015 it produced an expanded 10th anniversary edition with even more information and interpretation from its global tour of the best brands.

Credits: (Volkswagen) Sean Gallup/Getty Images, (Hovis) The Print Collector/Getty Images

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