Brand Valuation: practical necessity or absurd exercise?

Corporate legend has it that Ranks Hovis McDougall, in a successful effort to shake off a hostile takeover bid by Goodman Fielder Wattie, capitalised its brands in order to improve the structure of its balance sheet. Since then, Brand Valuation as a practice has grown to prominence. Sophisticated valuation methods have been devised and even been accepted by leading international accounting standards.  Today hundreds of companies around the world put a monetory value of their brands on balance sheets and several brand consultancies have made brand valuation a big part of their service offerings.

At one level, Brand Valuation does make a lot of sense. Brands are undoubtedly one of the biggest, if not THE biggest, assets a company has and it’s only logical for them, like any other assets, to have some monetory value. This number is apparently quite important for balance sheet reporting, tax planning, securitization, M&A, budget allocations and so on.

But then again, is putting a financial value on brands all that sensible? After all brands are emotional relationships customers have with products, services, events, places, people etc and the mere suggestion to put a financial number to these relationships is rather absurd. Could you financially value the emotional bond that exists between a mother and her child, between two lovers, friends, between you and your pet, your old car… You get the idea? How could my feelings for Red Bull, for instance, be translated in monetory terms really beats me.

 Proponents of Brand Valuation practices claim to have devised, and to an extent, perfected the valuation methodology. According to them, brands could indeed be valued and put on the company balance sheets. Now even if we assume for a moment that brands could really be valued, how is it possible that different valuators assign radically different values to the same brands? Coca-cola itself is valued at $66 million by Interbrand (www.interbrand.com), $45 billion by BrandFinance (www.brandfinance.com), and $58 million by Millward Brown Optimor (http://www.millwardbrown.com/Sites/millwardbrown/). Does that not make highly subjective what should otherwise be a very objective process of brand valuation? Which value should the accountants at Coca-cola really put on their balance sheet? Is it really, as Wally Olins puts it whilst ridiculing the concept, ‘as meaningful as sticking your wet finger in the wind and shouting out a number’?

 Most of the valuators seem to agree that brand equity is an important brand value measurement. It’s therefore obviously logical to believe that those brands that enjoy stronger brand awareness, brand loyalty, brand preference etc should be more valuable. Now I would expect Coca-cola and Pepsi to have pretty much the same level of brand equity in most markets; we all know both the brands, we all recognise them and we don’t care which one of them we get as long as we get a cola drink! Yet, according to the respective brand valuation reports, Coca-cola is the most valuable brand whilst its close competitor Pepsi languishes at 26^th, 21^st and 39^th positions. Isn’t it strange that the most valuable brand in the world can’t even command a penny’s worth of price premium over a brand that’s considered to be only half as valuable as it is?

 Again, the financial measures that the valuators use in their brand valuation processes forecast the current and future revenues specifically attributable to the branded products. I wonder how do they do that! How do they determine how many songs sold by iTunes are directly attributable to the Apple brand for instance?  More importantly, how do they determine how many songs iTunes would sell in the future because of the Apple brand? At the speed that the technology is moving, isn’t it possible for a disruptive brand to come in and destroy all that Apple has today? Hasn’t Steve Jobs single-handedly destroyed the entire walkman/diskman industry? How would the Brand Valuators have valued Sony when it was still selling those walkmans like hot cakes?

 Talking about Apple, do these valuation studies take into account the huge impact associated brands have on the main brand? What’s Apple worth after Steve Jobs, for instance? Would it be worth as much as it is today? And if the indicators are anything to go by (Apple’s share prices fluctuate according to even the rumours surrounding Steve Jobs’ medical conditions!), Apple may not be Apple without him. Same goes for Richard Branson and Virgin. It could be argued that other brands have survived long after their charismatic owners have gone e.g. Ford, but the difference here is that whilst Henry Ford was a charismatic boss, Steve Jobs or Richard Branson are much more than that; they themselves are brands in their own rights. And we haven’t known these brands without their owners’ names associated with them.

 In some other cases, brands’ equity/value does not depend only on one or two people but on each and every individual working for that brand. This is true especially in the case of B2B service brands – consultancies, agencies, law firms and so on. Clients are loyal to the consultants/agents they work with more than they are loyal to the firms and agencies those consultants/agents work for. How could then anyone determine such brands’ value when they are built or destroyed at every customer interaction, everyday?

 All in all, although the need to put a monetory value against brands on the balance sheets is logically understandable, the very concept of brand valuation appears to be highly subjective, impractical and bizarre.

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