What Should We Do With Brand Rankings?

How qauntifiable are brands? I sometimes hear from MBA students the lament that, after courses in finance, operations research, micro-economics and the like, their branding course can seem a bit too touchy-feely, more art than (psuedo-) science. Numbers and data speak for themselves. If that is the perceived sense, then what better than to find better and more elaborate ways to express branding in quantifiable terms.

The most recent exposition of this approach is set out as part of the special report on "Global Brands" that was published in the April 28 issue of the Financial Times. As part of the special report, the FT set out the "Global Top 100", relying on the 2010 BrandZ Top 100 report.

According to the report, the top 10 brands by value are: (i) Google; (ii) IBM; (iii) Apple: (iv) Microsoft: (v) McDonald's; (vii) Marlboro; (viii) China Mobile: (ix) GE and (x) Vodafone.

Sliced differently, at the sector level, the leaders in year-on-year growth are: financial institutions (12%); beer (10%) and technology (6%). The three sectors with the greatest decline are: coffee (-6%); insurance (-7%) and cars (-15%). Newcomers to the list (in order of their ranking on the general top 100 list) are BP; ExxonMobil; Shell; ICICI; PetroChina; Telcel; Petrobas and USBank. See more generally the FT report here. How exactly does the BrandZ report do about its work? Permit me to quote from the article:

"The BrandZ Top 100 is the only ranking based on a brand valuation methodology that is grounded in quantitative customer research and in-depth financial analysis....

Insights into customer behavior and brand strength come from WPP's unique BrandZ database -- the world's largest repository of brand equity data. Covering thousands of brands and based on more than a million interviews, it provides a detailed, quantified understanding of customer decision-making the world over. Financial data are sourced from Bloomberg.com, analyst reports, Datamonitor regulatory bodies, Millward Brown Optimor's consultants then prepare financial models for each brand that link brand perceptions to company revenues, earnings, and ultimately shareholder and brand value.

The valuation methodology is similar to that employed by analysts and accoutants. Brand value (BV) is derived from each brand's ability to generate demand. The dollar value of each brand in the ranking is the sum of its predicted future earnings, discounted to a present day value. An important element of the overall calculation is brand contribution (BC), the portion of earnings that can be considered to be driven by brand equity, which is presented as an index from 1 to 5 (5 is the highest); an additional metric is brand momentum (BM), which indicatews each brand's short-term growth potential. This is presented as an indexed figure that ranges from 1 to 10 (10 is the highest)."

Whatever you want to say, "touchy-feely" this isn't. And yet----

1. There seems to be a real "black box" aspect in the creation of the ranking. I cannot but think of all of those AAA bond ratings that helped percipitate the subprime securtization crisis. I am not suggesting that BrandZ is subject to any potential conflict of interest such as that which hovers over bond rating agencies (who apparently are paid to rate the bonds of their clients for use by third parties). I also fully appreciate that it might want to keep some of its methodology and data confidential. Still, there is this lingering concern that, without the ability to reasonably evaluate the process of fact-gathering and the empirical robustness of the valuation models, there is a threat that the ultimate branding metrics may have a bit of misplaced quantitative certitude about them.

2. As a result, I would like to see more reporting and comparison of ranking methods in addition to a discussion of the end results. The FT is not alone in relying on a single report to base its report. I believe that Business Week, which has also published a yearly review on brands and brand values, also relies on a single source. The time for such reports to give equal billing to a more critical appraisal of not only the "what", but also the "how", of brand rankings.

3. Since BrandZ claims to carry out more than 1,000,000 interviews about brand decision- making, it would be most instructive to summarize the process of such decision-making. Who makes the decisions and does the process differ across sectors?

4. Further, how is brand information used and transmitted within a company? Are the BV, BC and BM metrics used within the company to make branding decisions; if so, how? Or are they merely snapshots of where the company has been, brand-wise, over the last year?

5. Circling back to my initial obervations about training brand professionals, the ultimate question is how answers to all of the above will make us better able to train individuals to carry out the corporate brand function.

More on black boxes here and here.

More on touchy-feely here.

Valuation of copyright in drawings and equipment manuals

A correspondent has written to ask the following:

"I have a question relating to valuation of copyrights in drawings and instruction manuals of plant and equipment (e.g. machinery).

Is the value of the copyright separately identifiable from the plant and equipment or is the value inherent in the value of plant and equipment?

If it is separately identifiable, then how does one value the copyright if there is no market for these drawings and instruction manuals?"

I suspect that readers of this weblog may have some useful guidance for our correspondent. Please post your comments below, if possible, of email them to me here.

The best value for your dollar

A recent survey by YouGovPolimetrix shows that the economic downturn is having a significant impact on how consumers perceive brand value.

To examine the value of brands for its BrandIndex survey, YouGovPolimetrix collected data for two months, between 1 September and 27 October, sampling responses from an online panel of over 1 million consumers.

The time frame was chosen specifically to examine the impact of the economic crisis on brand perception: it revealed a focus among consumers on “bargain brands” (such as Wal-Mart or Old Navy), as opposed to more expensive, high-fashion brands.

The five brands with the highest consumer perception value were Craftsman, History Channel, Discovery Channel, Google and Rubbermaid. Maybe unsurprisingly, financial services firms have dropped significantly during this period, reflecting a loss of consumer confidence.

More information on the results of the survey can be found here and here – and more information on Polimetrix here.

Brand valuation: art or science?

In an article for BrandChannel ("A How-To Guide to Assessing Brand Value"), Canadian evaluator Catherine Tremblay describes the cost approach, the income approach and the market approach, then concludes:

"In a nutshell, the valuation of a brand can be more of an art than a science—but it’s an exercise that can help management identify and develop the value drivers behind the brand. Professionals, such as Chartered Business Valuators and members of the American Society of Appraisers, can provide insight and assistance in the valuation of brands and other intangible assets".

There seems to be an inherent contradiction here: if it's an art, then why should we be concerned to adopt a scientific approach -- and if it's a science, why is there such a gulf between results of the application of competing methodologies? Comments, please!

Successful captaincy boosts sports star's brand valuation

The Economic Times, India, reports that 18 years after he first played cricket for India, spin-bowler Anil Kumble's brand value has rocketed. Said the joint MD of Percept Holdings, a company that has worked with many Indian sportstars:

"To be honest, all of us have always ignored Kumble, even when he became captain, and he didn’t have a huge valuation. However, he has added a new dimension to his resume - that of an outstanding leader in very serious circumstances - which is sure to make a huge difference to his brand valuation".

The article adds that Kumble’s career graphic bears a striking resemblance to his brand fortunes. Just as he never really got the recognition due from cricket fans, he had also been the forgotten man of Indian cricket when it came to celebrity endorsement and his brand value always remained relatively low. additionally,

"Bowlers in any case do not get as much as batsmen - unfortunately that’s the way advertisers perceive endorsement deals".

Indian FMCGs look to brand val as a marketing tool

Business Standard (India) has reported that Indian companies are now turning to brand valuation as a means of assessing the success of their market strategies in the fast-moving consumer goods (FMCG) sector. One example is cited of a company that shifted the emphasis of its marketing from retail-targeted incentives to consumer-oriented ones. Adds the article,

"Brand valuation measures mainly two criteria - the potential profitability of the brand and non-financial factors like brand recall as compared with competitors. In India, such exercises have been undertaken mostly by large conglomerates, such as Tata, since it is easier to quantify the royalty to be charged from group companies using the corporate brand name. However, of late, companies across sectors, especially fast-moving consumer goods and telecommunications, have been valuing their individual brands. In the FMCG sector, brand valuation used to be popular mainly among multinational companies. However, sources say a clutch of home-grown entities are taking the route. Among these companies are Marico, Dabur India, Sun Earth Ceramics (the maker of Sonora tiles), Cholayil (the maker of Medimix) and personal care services firm VLCC".

The article then says:

"Disclosing the value of brands enables companies to have better investor relations and consumer perception. It also helps in tackling corporate litigations considering the rise in trademark cases, say companies".