The 40-Year-Old Metric That's Hot Again: Brand Valuation

Despite the frustration and disappointment many marketers can feel while trying to do their jobs, they should take solace in a recent trend: Business leaders are talking up the gravitational pull of brands—especially to investors. The focus on brand has sharpened during the Covid-19 crisis and the ongoing spike in prices for everyday goods and services, as robust brands seem to have proven their worth throughout all the social and economic turbulence. “Since the onset of the pandemic, consumers have been seeking brands they know and trust to bring a sense of normalcy and comfort to their lives,” Jeff Harmening, CEO of General Mills, told analysts in late 2020. Yelp: Inflation Turning Up in More Searches on Its Platform During an earnings call in spring 2022, Stewart Glendinning, group president of prepared foods at Tyson Foods, credited “brand strength and category relevance” for a lift in revenue despite charging customers more per item. Others are counting on their name and logo to help their company prosper amid changes in public opinion and government regulation. “We are fortunate to be stewards of one of the greatest brands in the world,” Ford Motor CEO Jim Farley said at an investor event in May. “The opportunity we have now is to elevate the Ford brand and introduce ourselves to millions of new customers who may have never considered a Ford.” The role brand plays in persuading a shopper to pick one product instead of another is difficult to define yet impossible to deny. Price, taste, design, quality, service, convenience and distribution aside, there’s power in symbols. A distinct combination of text, shapes and colors, for instance, can conjure childhood memories. It can also provide a sense of identity. For marketers struggling to shed the perception that much of what they do is a drain on corporate resources—their work does, after all, appear as an expense on income statements—brand valuation might be part of the solution. The practice is more rigorous than an ongoing consumer survey tracking brand favorability. If done right, the consequences can be more lucrative than partnering with a Hollywood celebrity or 30 creators on TikTok. Since other members of the C-suite aren't likely to stop asking for evidence of a return on marketing investments any time soon, there's good reason to believe the world of brand valuation is primed to burgeon. Appraising a brand: part art, part science Because discerning a brand’s worth in isolation from other attributes that influence consumer behavior is complex yet critical information, an industry has emerged to answer this question. Brand valuation began in the 1980s amid an uptick in mergers and acquisitions. Bankers, accountants and other financial folks wanted to get a better grasp on what, exactly, was being bought and sold. If trucks, office buildings and factory equipment were part of the deal, why shouldn't brands be included in the equation? Leading firms in the brand valuation market such as Interbrand, Brand Finance and Kantar’s BrandZ, however, all have different methodologies, resulting in different outcomes. Some focus on how much a company paid to purchase a similar brand in recent years, much like how the price of a house depends on how much someone spent to buy a comparable home in the same neighborhood. Some put an emphasis on the cost of licensing a brand. Other factors experts in the field consider include consumer sentiment, projected income streams and the investment required to create an equivalent brand from scratch today. All approaches have their merits, as well as their shortcomings. “While it is widely accepted that brands are long-lived assets that can contribute significant value to firms over time, there is no consensus on how to value them,” Jill Avery, a marketing professor at Harvard Business School, wrote in a case study. Take Coca-Cola, for example. Brand Finance estimated the beverage’s 2022 brand value as $35.4 billion. Interbrand put the figure at $57.5 billion. BrandZ, meanwhile, set Coca-Cola’s brand valuation at $97.9 billion. Which number is most accurate? And how would anyone even determine that? Avery’s report, published in 2018, cited at least 39 proprietary ways to appraise a brand. The fact each method arrives at a different conclusion illustrates the subjective nature of assigning a dollar amount to something so elusive and abstract. As Avery put it: “For many firms, brands are their most valuable and least understood assets.” All that said, the exercise is far from useless. Many people benefit from knowing how much a brand is worth this year versus last year, or how it compares to its rivals. Even if the math of brand valuation is somewhat fuzzy, what matters is that the fuzziness remains consistent across all assessments. “Ultimately, a brand represents future earnings and something positive for the company,” said Ronald Graziano, an accounting and tax strategist at Credit Suisse. “Investors want to get their arms around what that number is.” How marketers should think about brand valuation An entry on a spreadsheet stored in the cloud can only do so much for someone responsible for overseeing the reputation of a furniture line or restaurant chain. What makes brand valuation practical for marketers on a day-to-day basis is when they can use it to correlate their efforts with business metrics that shareholders care about, such as sales and stock price. In this sense, the concept connects the perplexing realm of consumer psychology to the one thing everyone understands: money. “The value of brand resides in all the mental connections it has in the minds of consumers,” said Graham Staplehurst, director of thought leadership at Kantar’s BrandZ. Put another way, brand valuation can serve as a barometer for which strategies are building long-term value and which ones are damaging it. In certain circumstances, performance marketing may be doing more of the latter than anyone would like to admit. “Brand valuation is a way to solve a lot of problems marketing organizations have,” said Joanna Seddon, CEO and global managing partner of the brand strategy consultancy Presciant. “If you can demonstrate the value of brand and marketing in a quantitative fashion, you can help the CMO earn respect.” According to Seddon, who was also involved in developing the BrandZ ranking system in the mid-2000s, not enough brand managers are pursuing brand valuation as a tool. Sometimes, she noted, that’s due to ignorance. Other times, it’s because the person in charge has an outdated mindset. “Marketers have done a terrible job of demonstrating the financial impact of what they do, which is why they're in such a mess,” said Seddon, who pointed to troubles marketers face in defending budgets and boosting credibility. In recent years, Omnicom’s brand consultancy Interbrand has started aiding clients in linking brand valuation to metrics such as raised revenue, improved margins and customer acquisitions. “More and more, it’s not just a static measure of the asset but a dynamic way of producing outcomes for the company,” said Greg Silverman, Interbrand’s executive director. “We’re quantitatively assessing the role a brand plays in how people make a decision.” Since Kantar’s BrandZ released its latest list of the globe’s 100 most valuable brands last month, about half of them have contacted Kantar to learn more about the process and applications, according to Staplehurst, who said that’s up from just a handful of inquiries prior to the pandemic. “I've had a range of sessions with different businesses saying, 'Come in to talk to our marketing team or C-suite' or whatever it might be,” said Staplehurst. The main shift in perspective here is that brand valuation shouldn’t be about producing an annual snapshot of the past. Rather, it should be an active guide for navigating the future. “The importance of brand valuation is the how: How does your brand drive value in the business?” said Seddon. “As we move into uncertain times and people are looking at slashing budgets, it's a way of transforming the marketing function.”

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The Rising Value of Brand Valuation

Companies aim to connect consumer psychology with the one thing everyone understands: money

Paul Hiebert

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Paul Hiebert