Mark Stuart explores how to measure brand value - and how businesses can push their brand up the rankings.
What's a plain white t-shirt worth? £3 perhaps. Let's be generous and say £6 if it's really well made. But if it has a small red tag with the right logo on it, it's worth £50. Brands work rather like alchemy: there's a magical transformation between the product as it really is, and the product as it is perceived once the brand has done its work.
No one can really explain how it works; why does Coke effortlessly keep its fizz above Pepsi-cola, no matter how much cash Pepsi throws at advertising? How does McDonald's cow the opposition Burger King into permanent second place, despite BK pleading with its audience that you can have your burger any way you want it? And how do these brands stay head and shoulder above their next competitors?
If the psychology of brands runs deep, then the science of measuring it is even more mysterious. Intangibles can now account for anything up to 40% of a company's worth. In the recently published 2010 Brand Finance Global 500 list, Google's brand value is now an almost unimaginable $36m. Google's achievement is to have become ubiquitous. We don't 'use a search engine', we 'Google something'. David Haigh, chief executive of valuation consultancy Brand Finance, argues that 'the clever thing about Google is that it has monetised the business in all sorts of different directions and that's why its brand value is so high.'
But how do you measure this kind of value? By their nature, intangibles cannot be accounted for by analysing profit and loss statements. For those of us who don't live in the rarefied atmosphere of multi-billion dollar valuations, can we measure branded content and how can we push our brand up the rankings?
Brand equity
Essentially, to measure brand value you estimate how much your company would be worth if it didn't have the brand; then compare that with how much you are actually worth. The difference is your brand equity. However, the path to brand valuation is rocky and has risks along the way. Take Compare the Market, a relatively new price comparison website, whose 'Compare the Meerkat' campaign has been staggeringly successful by anyone's standards. It's a good example to consider because price comparison websites are, by and large, undifferentiated from each other in terms of product or service.
The company's main distinguishing feature is its brand. The meerkat works because it's entertaining, memorable, original, but straightforward. The character is likeable; the comic way he falls over his words, and the increasingly irate irritation that customers supposedly come to his meerkat comparison site by mistyping market 'into computer keyboard'. The brand has struck a chord with customers, and its resultant value is huge.
Brand valuation
Yet brand valuation needn't have any necessary correlation (or indeed any correlation at all) with how profitable the company is; either in the short or long-term. Consider Amazon, which built its brand by entering a market (books) that had virtually no price flexibility. Although the Net Book Agreement, which fixed a 'recommended price' in print on the back of books, had ended, books were still priced relatively transparently. Amazon disrupted this by offering books at heavy discount; practically unheard of in bookselling outside specific 'discount stores' that sold end-of-line, damaged or overstocked books. By operating this (at the time controversial) policy, Amazon managed to knock out virtually all book-selling internet start-ups and become ubiquitous.
However, there was a price to this. Amazon achieved immense brand valuation but did not post a profit until the last quarter of 2001 (once the dotcom bubble had burst). Its pricing structure, considered as suicidal by many in the industry at the time (selling new books at discount rates) meant it took several years to break even. It was a high-risk, but highly successful strategy; Amazon now has such market share that it can buy books at huge industry discounts, enabling it to be profitable. But the point to remember is that high brand valuation does not necessarily mean you are a profitable company or a wise move to invest in; as ITV found to its cost when it bought Friends Reunited based on an over-optimistic valuation.
Your brand can be one of the most valuable assets you have. But it can be a distraction to focus too much on measuring it or trying to work out your brand value. To an extent, any brand valuations are approximate; they draw conclusions from a wide number of variations. Like any estimate of 'worth', it's possible to argue that a brand is only 'worth' what another company would be willing to pay for it. Thus, Google's brand might now be 'worth' $36 million, but the valuation is meaningless if there isn't a customer around tomorrow who would pay that for it. For the majority of companies, it makes sense not to get hung up on brand valuation or trying to estimate how you should measure your branded content.
Build the brand; make sure the product is right to begin with; ensure it is differentiated from your competitors; ensure it's something customers need or want; sell it at the right price, in the right place, at the right time to the right person, and communicate it in the way you've identified as optimum. If you've got your marketing right, profits will follow - and your brand valuation will take care of itself.
Mark Stuart is head of research at The Chartered Institute of Marketing.
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