Thursday, March 27, 2008

What Is a Brand Worth?

A brand is intangible. You can't see it (although you can see components of it). You can't touch it (but you can feel it). And it doesn't appear on a company's balance sheet or income statement (although it can substantially impact financials).

Despite that, you can put a price on it.

That's what Interbrand has been doing for years. Each year, they gauge the value of the world's strongest brands and release a report. Check out the 2007 report to see the top brands (Coca-Cola in on top with an estimated brand value of $65 billion). The list is informative, but what interests me more is the methodology Interbrand uses to ascertain a brand's value. For everyone who thinks branding is an exercise in managing the invisible for imaginary gain, the rigor will be surprising and informative.

Interbrand starts by estimating current and future revenue from the brand, and then they subtract operating costs and other intangibles, such as management strength and patents. What is left is the revenue flow derived directly from the brand itself. They then apply a proprietary measure of how the brand influences customer demand at the point of purchase compared to industry benchmarks. Finally, a discount rate for the future earnings is applied to determine a current brand value; this discount rate varies based on the brand’s ability to secure ongoing customer demand (loyalty, re-purchase and retention) and thus sustain future earnings.

Not to minimize the time and effort that goes into it or the unique processes and evaluations Interbrand uses, but the brand valuation process is pretty straight forward: What will the brand earn? Remove costs and other intangibles. Figure out the role played by the brand in the category. And then discount that flow of net income to a Net Present Value based on the future opportunities and threats it faces.

The 2007 report is lengthy and interesting, containing many analyses of particular brands. For example, Interbrand compliments Google's Brand Management for "maintain(ing) a sincere and consistent feel to everything that it does," despite rapid growth and frequent brand extensions. Also noted is something I believe to be vitally important, even with brands not built on person-to-person interactions: "Google has revolutionized the way it screens employees to ensure that everyone who comes through its door is ‘Google-worthy’. Inevitably, it’s become bigger and more complex, but this has done nothing to dilute the recognition and desire that the business is still held together by Google ‘glue’."

Last year's report also compliments Starbucks (although the brand has fallen on some harder times recently). Recognizing that "every single experience counts," Interbrand says that Starbucks has such an "embedded role in people’s lives that any evolution of the brand can be truly wrapped around its customers, rather than simply broadcast in 30 seconds and the Sunday circular."

Both Google and Starbucks are brands built with Experiential Marketing (XM) concepts, and they demonstrate how different XM can be for different brands. Both obsessively focus on the customer experience, making sure every touchpoint communicates the same set of brand values. The experience of one is simple, almost spartan, but totally functional and focused on the consumer. The experience of the other is rich, warm, and engaging--but equally focused on the consumer.

I highly recommend you peruse the lessons and insights from Interbrand.

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