Profile: Jeremy Gilley

The man marketing world peace

Brand valuations do not always tell the full story

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Let’s say you are going to sell your house. You bring in two different real estate agents to value your property. The first agent comes in and inspects your house thoroughly and tells you that based on his expert opinion it is worth £430,000. The next day the second agent calls, she has reviewed the sales of other houses on your street and thinks your property is worth £1.15m.

All valuations are inherently subjective. But half a million quid is a shit-load of subjectivity. You’re now pretty perplexed. Either the first real estate agent is totally incompetent or, alternatively, the second firm and their property survey approach is way off the mark. Or maybe the whole real estate business is a bunch of crap and you’d be better off holding your own auction and letting the market decide.

This is exactly the situation we are in now with respect to brand valuation. I differ from my esteemed Marketing Week co-writer Wally Olins who believes brand valuation is pointless. Brands, like houses, sometimes have to be sold and when they do, a fair value for the equity of the brand must be calculated or we would return to a bygone era where brands remain off the balance sheet and marketers are restricted to fluffy, design-derived roles at the periphery of organisations.

The problem is not whether we should value a brand, but rather where the figure comes from. Most journalists working for the popular press don’t really understand brand valuation so they treat any and all approach with equal attention. Anything with a top 10 brand list will make its way into the media. Look at the success of the hilariously bad Superbrands as an example.

The two most well-regarded brand valuations are provided by Millward Brown’s BrandZ Top 100 and Interbrand’s Best Global Brands list. Both produce the same thing: a ranking of the 100 most valuable brands in the world, and each year we get to see their latest assessments.

The problem for the two companies involved, and marketers in general, is how far apart their annual estimates of brand value tend to be. For example, in 2010 BrandZ estimated the value of the Google brand to be $114bn, making it by far the world’s most valuable brand and suggesting that approximately 75% of the overall market capitalisation of Google can be attributed to its brand value.

In contrast, Interbrand valued Google’s brand at $44bn in 2010, well behind brands like Coke, IBM and Microsoft. That’s more than a minor difference of opinion with BrandZ - that’s $70bn worth of disagreement. Or, to put it in perspective, the combined 2010 brand values of Porsche, Barclays, Audi, VW, HSBC, Ford, Nike, Burberry and Pepsi.

Valuation is a tricky business because, unlike most of the activities and actions associated with marketing, it is expressed in a single, comparable financial number. And like our prospective house buyer, when it comes to the crunch of buying and selling something, the numbers matter.

The vast $70bn difference is not derived from a difference of philosophy - both Millward Brown and Interbrand calculate the value of a brand the same way. They work out a simple net present value based on a calculation of how much money a brand earns, how much of those earnings were generated by the brand itself and the likelihood that the brand will be able to maintain that strength in the years to come.

Both firms also have access to the same financial data for each brand. The difference comes from the method each uses to estimate a brand’s overall strength. BrandZ uses its own internal survey of “2 million consumers in 30 different countries” to assess brand strength. Interbrand relies on its “pool of global experts from over 40 countries” who each complete a 10 item assessment of every brand’s strength.

It’s a classic marketing contrast. BrandZ uses data. Interbrand uses managerial opinion. I know which one I prefer: data beats opinion every time in my book. But the value of different valuation approaches is, itself, subjective. And both firms have legitimate reasons to claim their approach is superior. For BrandZ there is 13 years of extensive panel data and Millward Brown’s track record of research excellence. For Interbrand there is the authenticity of being the first proper brand consulting firm and the only name that most CEOs recognise when it comes to branding.

And we come back to the $70bn elephant in the living room. Like our confused house buyer, smart marketers are now questioning the two firms and the whole business of brand valuation itself. BrandZ has already published its 2011 league table and Google is now valued at $111bn - down 2% on 2010’s valuation and second only to Apple in global brand value terms.

Which leaves us waiting eagerly for Interbrand’s imminent 2011 estimate. Will it close the gap between its valuation and BrandZ’s? And if it does, how will it account for the change? Or will it continue to assess Google’s brand value as less than half that provided by BrandZ? And if so how will it defend such a glaring difference in value?

Readers' comments (10)

  • It maybe crude but I'd simpy calculate the average value based on BrandZ AND Interbrand.

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  • Correct me if I'm wrong but I don't believe Brandz has been endorsed by the International Standards Organisation. Why would they when they value Google's brand at 66% their market cap?!

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  • Correct me if I am wrong, but brand value is the value created by brand alone rather than other factors. Given that most of the value @ Google is created by the brand it is a wonder that Google brand is not valued higher.

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  • According to the figures in your article the increase in brandz valuation of google from 2010 is 34%, and not 84% as stated. Love your articles but maybe get someone to help out with the maths!

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  • Does this highlight the need for a more consistent, repeatable approach to brand valuation? There is an International Standard now - ISO 10668.

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  • My apologies - anonymous is correct and I totally mis-stated the 2011 change in Google's brand value. I have asked the MW team to alter the offending sentence online.

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  • To continue Mark Ritson's house valuation analogy - when a home owner spends money investing in their home - they do so hoping it will increase its valuation.
    It's a simple formulae; 'Investments' in our home that lead to an increased valuation will be celebrated and may be repeated, whereas 'investment' decisions that have no impact - will be less likely to be...
    Transfer that mindset to Marketing Directors - and one can see why Mark Ritson is right to suggest it is vitally important to urgently improve the methodology for how we value brands.
    Without a more robust brand valuation model how can Marketers ever hope to get to the next step of identifying which marketing investment decision was 'right' or 'wrong'?
    For all marketing services consultancies, our claim to a bigger bite of the increasingly complex marketing investment cake ultimately depends on making progress in this area.

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  • Interbrand and Millward Brown are both 100% subsidiaries of marketing services behemoths Omnicom and WPP, which turn over billions of dollars building the very brands which they then value.

    There is a big question mark over their professional independence and it could be argued that they use their own proprietary ‘black box’ methods to publish the results that suit them.

    It is time for more transparent and independent brand valuation to eliminate this kind of criticism which Mark Ritson highlights.

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  • Something else which is strange in the Interbrand list is the lack of brands from BRIC markets in the top 100. Does the 'pool of global experts' have a truly global perspective ?

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  • Mark, I'm a strategy researcher new to the advertising industry. Until I read your article, I was surprised by the wild difference between the Interbrand and BrandZ valuations. Your comment " data beats opinion every time in my book" is on the money. Thanks. Nice piece.

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