Brand valuation is controversial. Putting a precise financial value on such a great intangible is impossible, although there are plenty of brand experts who are prepared to make an estimate, and plenty of corporate leaders who take the results very seriously. On the one hand, how can a lawyer put a dollar figure on his reputation? Why do some companies “retire” popular brands if they are worth money? Can we measure precisely how much customers “love” Honda more, or less, than Toyota? On the other hand, it could be argued that the respected law firm is able to charge higher fees because of its good name. Campbell’s soup sells for more than the generic brand, representing a return on the brand for every can sold.
Basically, formal methods of brand valuation try to separate the abstract “thing” that is a brand from the more concrete assets whose value is easily measurable in a company, including factories, equipment, and know-how such as patents. The different approaches to brand valuation, and the accounting rules in various countries that allow for recording brand value as an item in a company’s financial statements, have the same aim: to provide tools for businesses to plan investments, evaluate mergers and acquisitions, explain the terms of a joint venture, or sue each other for damages.
Each year the global consultancy Interbrand teams up with BusinessWeek magazine to rank the world’s most valuable brands. They consider only brands of public companies, whose financial results are published, and whose financial performance can be easily separated from the rest of the company’s activities. The value of a brand is the market capitalization of the company—the value of its stock—minus hard assets like factories. This shows how much money the brand is earning for its owners.
Young & Rubicam, the worldwide ad agency, takes a different approach with its Y&R Brand Asset Valuator, which it uses as a tool for determining the relative strength of any given brand. It focuses less on economics than on qualitative data, surveying thousands of customers to establish four measures—differentiation, relevance, esteem, and knowledge—with which to plot a brand’s relative position in its sector or category.
Each approach has its merits. Two brands might have a clear economic relationship, but might engender very different feelings among customers and inspire different behavior or loyalty. For example, Microsoft’s brand always rates well in financial terms because of strong sales, but Apple, although it rates lower in financial terms, is widely seen as a better-loved brand.
Brands represent a dialog, or struggle, between two parties: the producer and the customer. Putting a value on a brand is a bit like betting on a football match: you know how the players have been doing lately, but you still can’t be sure who’ll win tomorrow. Brands that evoke the greatest passion and loyalty are often small brands belonging to small companies. Well-loved brands seldom belong to really big companies, so financial valuations inevitably create a paradox, rewarding size while discounting passion. In any case, putting a number on a brand’s past performance tells companies little about what they should do in the coming years in order to nurture, expand, rejuvenate, or refocus their brands.