Insight and brand valuation

Suzanne Jones, The Trends Observatory

Brand values are big business, and are especially significant for financial statements.

They can sometimes be the most valuable item that a company owns.

They also provide big business for the consultancies who offer brand value measurement for hefty fees.

The value of a brand

With major decisions being based on brand values, it would be reasonable to expect that the methods used to calculate them would be scientific, consistent and transparent.

However, the opposite appears to be true.

Brand valuations originated in the 1980s, when companies that were taking over consumer brands were facing large write-offs because the cost of acquisition was more than the cost of the assets, as the brand had no value. To remedy this situation, brands became listed and valued as intangible assets on the balance sheet. This eventually became an accountancy standard and today there are IFRS rules about how brand values can be calculated in financial terms.

However, this calculation is based on the market value of a brand if it would be sold or franchised, rather than being a statement of its worth to consumers.

As brand valuations have an impact on marketing strategy and budget, using this financial valuation seems flawed in terms of understanding the consumer’s propensity to purchase. Marketeers were quick to recognise this - and so were consultants, who developed new methods of calculating brand values to include the consumer perspective.

Did this mean that the problem was solved? Hardly…!

Variations in valuations

Brand valuations created by consultancies can lead to a lack of transparency, clarity and understanding. Although numerous consultancies and brand agencies create and measure brand values, each company has its own proprietary methodology. Whilst everyone understands the need to safeguard IP within consultancy fields, this hasn’t helped the field of brand valuation, which is inconsistent and misunderstood due to the lack of transparency.

As a result, three different brand valuation consultancies would probably deliver three very different answers if they were all asked to value the same brand. Given the importance of the decisions that could be made as a result of this number, it’s strange that the outcomes can be so varied and subjective.

The limitations of brand values become very apparent when comparing the Top Ten brands in the four leading ‘global brand value lists’. For example, the brand value for Apple has a variance of US$43 billion – equivalent to the GDP for Lithuania!

How can insight teams help to unscramble some of the brand value mystery?

The original job of brands was to assure consumers about the quality of a product or service. This developed as time went on and the purpose of brands today is their ability to transfer loyalty across products, services and categories.

However while a few brands manage to inspire loyalty beyond reason (e.g. Apple and Coca-Cola) the majority fight to single themselves out from the crowd to get picked and re-picked by consumers, provided they deliver the quality they promise and can compete on price.

Given the diversity of brands and how consumers compare them, discuss them and choose them, the existing methods of brand valuation, often based on financial figures or what the brand would be worth to franchise, seem out of touch with how brands are experienced in the marketplace. This is where insight teams can help by providing clarity for the role that brands play in the customer decision journey.

Developing transparent methods of understanding consumer awareness, loyalty and the persuasiveness of brand in their sector could go a long way to delivering a better answer.

Insight teams are often responsible for measuring brand awareness and brand engagement – which are steps towards understanding the brand value. Could insight teams be the perfect place to develop a more transparent and deeper view of brand value, one not based on financial values but on real market understanding and consumer evaluation?

For a more detailed review of existing methodologies and a proposed Customer Decision Journey Model from The Trends Observatory, please click here

Further reading