Marketing Aug 4, 2017

What Is a Brand Real­ly Worth?

A glob­al stan­dard can help exec­u­tives under­stand how pow­er­ful an asset they have.

Morgan Ramberg

Based on insights from

Bobby J. Calder

Every year, Forbes, Inter­brand, BrandZ, and oth­ers pub­lish lists of the world’s most valu­able brands.” The lists gar­ner lots of media atten­tion and give mar­ket­ing experts some­thing to argue about with their peers. But what does brand val­ue” real­ly mean, and who should get to decide? 

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It’s more of a pub­lic rela­tions game,” says Bob­by J. Calder, pro­fes­sor of mar­ket­ing at the Kel­logg School. There isn’t a lot of rig­or that goes into those rank­ings. There have always been attempts to mea­sure the strength of a giv­en brand, but we’ve nev­er had stan­dards for com­par­ing brands or assign­ing an actu­al mon­e­tary val­ue to a brand.” 

Calder hopes to see that change. As head of the Inter­na­tion­al Stan­dards Organization’s (ISO) Com­mit­tee on Brand Eval­u­a­tion, he has been deeply involved in the effort to cre­ate agreed-upon meth­ods for eval­u­at­ing brands and deter­min­ing the finan­cial val­ue of brands. For exam­ple, what is the worth of that translu­cent apple on your com­put­er or the swoosh on your run­ning shoes? 

And while he acknowl­edges that brand val­ue” may nev­er appear on a bal­ance sheet, Calder thinks there are plen­ty of ben­e­fits to cal­cu­lat­ing a num­ber for such an impor­tant intan­gi­ble asset, which is worth weigh­ing along with known quan­ti­ties like rev­enue when mak­ing strat­e­gy and invest­ment decisions. 

Giv­en the inter­est from board­rooms and investors, we think it makes sense for peo­ple to focus on putting a val­ue on their brand when mak­ing decisions.” 

Two Ben­e­fits to Brand Valuation 

For Calder, there are two main rea­sons why a com­pa­ny might want to deter­mine the finan­cial val­ue of its brand. 

First, hav­ing an accu­rate fig­ure would help the company’s lead­er­ship decide how to man­age a major asset. Mar­ket­ing has always been hard to man­age from a cor­po­rate point of view,” Calder says. Even suc­cess­ful com­pa­nies strug­gle to know how much to invest in their brands. Many, includ­ing Coca-Cola, have cre­at­ed a new glob­al posi­tion, the chief growth offi­cer, to replace the CMO, a trend that sug­gests a broad­en­ing of the tra­di­tion­al approach to mar­ket­ing lead­er­ship.

If investors can see a brand as one of the key assets under­ly­ing a company’s via­bil­i­ty, they can make invest­ment deci­sions that aren’t behold­en to quar­ter­ly earnings.”

Com­pa­nies would do well to know how their brands com­pare to oth­er assets,” he says. That way they can man­age for growth. At the very least, they should be smarter about mak­ing mar­ket­ing investments.” 

Report­ing on a brand’s actu­al val­ue may also attract investors. Just as investors of the past would put their faith in Gen­er­al Electric’s man­u­fac­tur­ing capa­bil­i­ty or prod­uct qual­i­ty, investors of the future might look to the val­ue of a company’s brand as evi­dence of con­tin­ued growth, even dur­ing peri­ods of tem­po­rary decline. 

If investors can see a brand as one of the key assets under­ly­ing a company’s via­bil­i­ty, they can make invest­ment deci­sions that aren’t behold­en to quar­ter­ly earn­ings,” Calder says. Right now, there’s no reli­able way to iso­late brand strength for invest­ment pur­pos­es, so what we need is a sys­tem of report­ing that would allow investors to compare.” 

Of course, there is always the pos­si­bil­i­ty that a company’s brand val­u­a­tion will come out low­er than expect­ed. But Calder believes that, on bal­ance, there are more ben­e­fits than draw­backs to report­ing on brand val­u­a­tion — espe­cial­ly if it becomes the norm. 

In recent years there’s been a move towards inte­grat­ed report­ing,” he says. Com­pa­nies now report on CSR, sus­tain­abil­i­ty, and many oth­er per­for­mance mea­sures. Why not include the strength of their brands? I would think of it as an opportunity.” 

From Idio­syn­crat­ic to Rigorous 

So how do you put a val­ue on a brand? 

Peo­ple might think it’s impos­si­ble, that mar­ket­ing is too inex­act,” Calder says. The per­cep­tion is that mar­ket­ing uses too many buzz­words. It’s like the Tow­er of Babel. Every year there’s a new set of terms and a new secret formula.” 

In the past decade, how­ev­er, there have been calls for a more rig­or­ous approach. The Mar­ket­ing Account­abil­i­ty Stan­dards Board (MASB) — Calder serves on its advi­so­ry board — was launched in 2007 by a group of mar­ket­ing sci­en­tists in response to mount­ing pres­sure to clar­i­fy some of the discipline’s fuzzi­ness. And the mis­sion has, to a cer­tain extent, become a glob­al phenomenon. 

At the ISO what we’re try­ing to do is set up a stan­dard nomen­cla­ture and stan­dard method­olo­gies.”

One method­ol­o­gy, for exam­ple, involves deter­min­ing how much the brand would be worth if it were licensed or sold. Just as you might price a home by look­ing at com­pa­ra­ble homes in the same neigh­bor­hood, you assess a brand by com­par­ing it to a sim­i­lar one with a mar­ket val­ue. (There is, after all, a tra­di­tion of valu­ing brands for pur­chase and licens­ing, but so far that has not extend­ed to brands that com­pa­nies grow themselves). 

Anoth­er approach relies on var­i­ous met­rics hav­ing to do with con­sumer behav­ior. How often do con­sumers choose a giv­en brand if they have a choice of brands, for exam­ple, and how big of a pre­mi­um are con­sumers will­ing to pay for a brand? Those met­rics are then linked to finan­cial met­rics like cash flow to arrive at a mon­e­tary value. 

If you can say that ten per­cent of your cash flow is due to brand per­for­mance, you end up with a finan­cial num­ber,” Calder says.

The ISO com­mit­tee is work­ing on a vari­ety of method­olo­gies, but there are a num­ber of chal­lenges, giv­en that dif­fer­ent orga­ni­za­tions and coun­tries favor dif­fer­ent approaches. 

It’s still a work in progress,” Calder says. The first step is to devel­op a com­mon frame­work and a lan­guage with which to move for­ward. These stan­dards don’t have to be as exact as those of elec­tri­cal engi­neer­ing, but they do need to cut through the jar­gon and be artic­u­lat­ed in a way that allows con­sis­tent imple­men­ta­tion. Of course, there will be cus­tomiza­tion depend­ing on the indus­try. But the more com­pa­ra­bil­i­ty we get, the bet­ter off we are.” 

No More Hocus Pocus” 

Ulti­mate­ly, Calder hopes that hav­ing stan­dard meth­ods by which to cal­cu­late brand val­ue will put mar­ket­ing exec­u­tives on more sol­id ground when it comes to play­ing an expand­ed role in cor­po­rate plan­ning and governance. 

CEOs have always thought of mar­ket­ing as mys­te­ri­ous. I know that fifty per­cent of my mar­ket­ing bud­get is wast­ed,’ they’ll invari­ably say, but I don’t know which fifty per­cent.’ They’re both afraid to cut back and risk-averse to invest­ing more.” 

An accu­rate brand val­u­a­tion would help strip away some of this uncer­tain­ty. It would also allow a mar­ket­ing team to prove — to oth­ers in the C-Suite, as well as investors — exact­ly how pow­er­ful of an asset they have created. 

There’s no more hocus pocus about it,” Calder says. It’s either up or down. So mar­ket­ing can be on an equal foot­ing, rather than being per­ceived as squishy.” 

About the Writer

Drew Calvert is a writer based in Iowa City, Iowa.

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