When brands fail, does brand valuation too?

Last month Wally Olins, the man synonymous with the London brand agency that still bears his name, pronounced brand valuation an “utterly meaningless process”.

The bedrock on which many brand consultancies, accounting and valuation firms have built their reputations and practices, Olins pulls no punches on the value of brand valuation, describing it as “about as meaningful as sticking your wet finger in the wind and shouting out a number.”

He says this “ apparently rational process” is conducted through a “series of complex, arcane and to a lay mind more or less incomprehensible statistical measurements” but which ignores a number of well known truths.

“The truth is that brands of all kinds jump around all the time. They are in fashion, then they go out of fashion. They are well managed, then they are badly managed; brand managers become too risk averse or take too many risks.”

And his point is well made. Here in Australia we only need to look at a company like Babcock and Brown (B&B). Founded in 1977, this international finance and investment company had at one time 28 offices and in excess of 1,500 employees worldwide including offices in Europe and the United States. In December 2006 it had a market capitalisation of just over $8.5 billion and in 2007 its share price peaked at AU$33.90 but by December 2008 its share price had nose-dived by 99.6% to AU$0.14, representing a market capitalisation of less than $50 million. Last week the company was placed into voluntary administration.

Here Olins’ point is easy to support. Obviously, if a brand like B&B has no financial value (as the B&B board announced in January) - on what basis can any brand valuation be made?

Similarly, as BusinessWeek ranked Citibank the number 11 brand in the world in 2007 with a valuation of U$23 billion by 2009 some estimates put its brand value at around $9 billion and with that its ranking would fall to around number 40. No one can or would dare predict what Citibank’s brand value will be by the end of 2009. And given the level of US government assistance (US$25 billion to date), it’s brand may yet cease to exist (like I saw Washington Mutual close it’s doors and disappear overnight) and what then is the meaning of any valuation?

It Olins is does oversimplify of the brand valuation process in that it does examine both net present value as well as attempts to construct an idea of future value. However, he is right about how often brand valuation is trumpetted as an absolute measure of value and that, almost without exception in most valuations I have seen, the process takes no account of what either customer or market perception and sentiments is for a brand.

And Olins is only half right when he says brands have “no objective, absolute value” but the truth is that brand valuation can be used to establish an objective value but its ability to measure “absolute” value that is somewhat questionable.

The four standard brand valuation methodologies accepted by both the Financial and Accounting Standards Board and the International Accounting Standards Board for use on balance sheets around the world do provide an objective guide to what people should pay for brands. However, they can, in no way, be used to demonstrate absoluteness

The real fact is that by any measure there has only been a small reduction in the brand value of most of the world’s top brands and as market conditions and sentiments change values continue to change. Last week brands like Apple, Google, UPS and Amgen were being touted as possible replacements in the venerable Dow Jones Industrial Average for stricken companies like Citi Group, General Motors and General Electric.

Brand values do reflect balance sheets, market trends and sentiment but can only do their best to take account of black swan moments. In that way there can be no absolutes, and that is meaningless.

This blog was also cross-posted in Marketing Magazine Australia on March 17.

The battle of the brands: the contest for the best brand surveys in the world.

Dr Hunter S Thompson must be smiling. The Hells Angels are Australia's number one brand, if yet another brand popularity survey is to be believed.

Brand rankings, brand affinity, brand preference, brand valuation studies - dress them up as global and national rankings and name them the World's Best Brands, the World's Most Valuable Brands, the World's Most Recognised Brands, the World's Most Powerful Brands, the World's Most Loved Brands and you get some sense of the beauty contest that is going on for companies claiming authority in battle of brands.

Advertising agency the Belong Group's Australian study of national brand awareness, appears just another example of yet another advertising agency trying to climb onto the brand popularity surveys bandwagon, with what can best be described as a very "independent" study.

According to Belong, the top five brands in Australia are the Hells Angels, Apple, Star Wars and the diary and stationery manufacturer, Moleskine!

While there is little detail on the study methodology, it seems that a 1000 consumers were polled on the basis of what a brand stood for, if there was a clearly articulated belief and whether the brand elucidated a particular type of behaviour in people. A panel of, what Belong describes as, "industry experts" then ranked and shortlisted 20 brands.

It's not too dissimilar to advertising agency Saatchi and Saatchi's Lovemarks project.

A love mark is a product, service, person or place a consumer can’t imagine living without, has a specific name that is identifiable by others and is based on a personal experience.

Lovemarks is about consumer's identifying a small, everyday product or brand that embraces and infuses people's live to make them a little better via the Lovemarks' website listing.

Interestingly there is some affinity with Belong top 20, Lovemarks contributors rank Apple at 4 and Moleskine at 6 among their top 200 and also Nike at 87 and Star Wars at 148.

Belong's top five of the top 20 brands (Alannah Hill, Free Hugs, Peter Alexander, T2 and the Bra Boys) are Sydney based, would suggest that either Belong are looking for new clients (Saatchi and Saatchi reportedly won US$430 million JC Penney contract because of Lovemarks) or that the brand menu was very selective and the research net wasn't cast too widely outside of Sydney.

Compare this to the top five in last years The World's Best Brands, an annual global study published Business Week for the last seven years, which lists CocaCola, Microsoft, IBM, General Electric and Nokia and you'll see why things must have gone a little awry over at Belong.

In the Business Week study, Nike which ranked 12th on Belong's list slips in at 29th, Harley Davidson motors in at 45th and Apple manages to get 33rd. No mention of Smiggle, The Body Shop and shoe brand, Ecko.

Unlike the Belong study, this ranking uses a combination of analysts’ projections, company financial documents, and own qualitative and quantitative analysis to arrive at a net present value of company earnings to establish the brand value.

To even qualify for this list, brands must make at least a third of their earnings outside the home country, be recognisable outside of its customer base and have publicly available marketing and financial information.

Global brand valuation agency Brand Finance's Top 100 Australian Brands, published in June this year, lists National Australia Bank, Woolworths, Commonwealth Bank, Telstra and the Foster's Group in the top five. Coca Cola is listed at number seven.

Happily for Belong - Seven Network, which screens Sunrise (ranked 18th) is ranked 28th by Brand Finance and one of the licensees of the Virgin brand (ranked eight by Belong) Virgin Blue scrapes in at 45.

Brand Finance's rankings are based on the brand portfolios of Australian Stock Exchange listed companies, in terms of their absolute dollar value, and also the percentage contribution that the brands make to enterprise value.

Brand Finance defines a brand portfolio as the value of trade marks and trade mark licenses, together with associated goodwill.

Global marketing research agency Millward Brown's World's Most Powerful Brands or BrandZ Study published in April this year lists Google, General Electric, Microsoft, Coca Cola and China Mobile in their top five.

In their list Apple comes in at seven, Nike at 53 and Harley Davidson at 72. No listing for Dove or Star Wars here though surprisingly Unilever, which does own the Dove brand, (perhaps no one knows who they are in Australia) is unranked but McDonalds ranking eigth and Subway (73) are.

Millward Brown's annual BrandZ Study measures the brand equity of 50,000 global “consumer facing” brands and interviews over 1 million consumers globally (though this is probably across numerous studies of unspecified nature). The Top 100 ranking assesses brand value using market and consumer research, in combination with financial data from Bloomberg and Datamonitor, to calculate and break-down intangible earnings), brand contribution (the brand’s effectiveness in driving business earnings and what they call Brand Momentum (an index of expected short-term brand growth).

The Millward Brown ranking takes into account regional variations since even for truly global brands measures of brand contribution might differ substantially across countries.

The Belong study is based on consumer sentiment with an "expert" filter and provides a simplistic but popularist ranking of the "top" brands in Australia. Alongside Lovemarks, it proves there's a long way to go before we get a more accurate measure of the relevance and influence these brands have on consumers. While the global brand ranking studies do provide a substantial degree of homogeneity in their brand rankings because of common financial inputs, the degree to which they measure power and recognition is something recognisable consumer input could make a significant contribution to.

What drives Booz's brand analytics tool?

Booz&co have ventured into the small but under-estimated brand valuation market with the launch of a brand vitality assessment tool designed to help failing brands redefine themselves..

The announcement comes off the back of Millward Brown's recent alliance with Brazil’s leading brand valuation consultancy, Brand Analytics, designed to complement its Optimor evaluation and measurement products in the South America market.

It also signals the tendency for global brand and business consultancies to merge strategy and engagement with valuation and analytics off the back of increasing client demands for transparency and justification in spend.

In the latest issue of Strategy and Business, Booz&co cite the success of revitalized brands like Abercrombie & Fitch, Johnnie Walker, Olay, and Ford’s Mustang as evidence that the success or otherwise of brand revitalisation and brand extension has been traditionally driven by "instinct and an appetite for risk".

Booz claims its new tool kit provides "data-driven analytics" to minimize the risk associated with these kinds of decisions. Called the Brand Vitality Assessment (BVA) and sounding much like Y&R's Brand Asset Valuation (BAV), it says it examines every aspect of a brand including communications strategy, pricing and the state of its competitors to reveal how much life is left in the name.

Booz's BVA is supposed to help companies "identify latent value — or the lack thereof — in their product portfolios before deciding what to do" or in other words, what the brand equity is. No surprises here and hardly different from their competitors.

Booz's BVA process is based on a brand having what they describe as "residual strengths" such as brand associations, the potential for or meaningful differentiation on at least one purchase driver and basic distribution infrastructure to support the revitalization.

It uses four related evaluations that incorporate consumer (where hoping that B2B hasn't been ignored here) research to create a holistic and data-driven view of how the brand is currently performing in the marketplace.

The evaluations seem fairly qualitative rather than quantitative and Booz is unable to cite any examples of what kind of measures are actually made and what kind of data is produced. Further, they don't provide any evidence of any brands they have worked with that have employed quantitative measures but apply only market share figures as demonstrations of how the process works.

The four evaluations appear almost entirely qualitative. They are:

1. The Purchase Funnel Assessment (PFA) is just another way to evaluate the purchase decision process and from DIFFUSION's experience this is generally qualitative as it relies on customer assessment from awareness to point of purchase.

2. The Brand Equity Review (BER) is designed measure residual brand equity and loyalty within the target customer segment. While it might identify the brand’s attributes, one would think these would be known and those attributes which have been eroded or been rendered irrelevant by competitors, again this seems more qualitative measure.

3. Competitive Dynamics Assessment (CDA) is a look at which competitors are taking away market share, why, and how easily the problems could be rectified.

4. Value Proposition Check (VPC, I suppose) analyses the brand’s benefits including marketing communications and pricing. It includes standard brand attributes and benefits check built around the functional, emotional and expressive against consumer, competitor, and internal perspectives. Nothing new here.

Booz's so-called Brand Vitality Potential (let's call it BVP and not sure how it snuck in) is the final evaluation, where the "cold hard facts, as uncovered by the previous four analyses, come into play". I guess this is where we might see some numbers.

Booz says the BVA is "not a panacea for tired brands" but that it offers is "a rigorous, data-driven approach to deciding a brand’s future" except we don't know what the real data is except it's all qualitative.

Booz could do well to state whether any other quantitative measurements are being used such as total market shares, sales by segment against overall PE ratios and how these are applied by the BVA. What scoring tools will be used? How will one tool be used against another? What are the weightings? If any?

More importantly, how will the assessment be reported and by whom and within what framework, particularly from the point of view of brand stretch and brand extension.

Then there are the issues of brand redefinition, activation and engagement, which follow on from such work. Booz and for that matter few other consultancies, have little capability or experience doing this kind of work despite talking about it and claiming it. The article cites no projects they have worked on this area, just suppose sos.

That there are so few consultancies and their clients who have undertaken these kind of complete lifecycle projects following a brand valuation, says much about the the general market wlllingness to understand the process behind brand creation and to make the actual investment required to revitalise dormant brands as it does about the abilities of the consultancies they use. The one's who have done it and been successful have obviously understood this from the outset.

Image courtesy of Chronicle Books.