Brand Valuations: the verdict is out
In a previous post I discussed possible reasons why two very well respected brand valuation companies offered such polarizing opinions on the brand value of Apple (at the time the difference was nearly 100 Billion USD). My article was received well by Christoph Binder, a partner at Trademark Comparables. Binder, whose specialty is brand valuation, decided to share with me the findings of a related study they executed.
Brand rankings and the valuation beneath those rankings aim to measure the health of a brand in economic terms, separating the brand from all other assets of the company. In a nutshell, they aim to translate into economic terms both the functional and emotional strength of a specific brand, beyond short term tactical promotions (e.g. temporary price reductions) which might impact turnover. In my previous article, I posited that the huge differences in the aforementioned valuations, as well as the methodologies driving these valuations, have nothing to do with the valuation of the company itself. In some of the rankings, the brand value exceeded the stock market valuation and/or price.
Our friends at Trademark Comparables went several steps beyond my previous conclusions and measured key differences between the top three brand valuation companies (e.g. MB, Interbrand and Brand Finance), including the consistency of each of the valuations and how the rankings compared to one another.
Their findings were staggering. Three types of perceptible differences emerged from the analysis: disparities in absolute value rankings, top 100 lists, and year-over-year consistency.
In order to understand the differences in absolute value, let us take a look at an example: in 2014 Google’s brand was evaluated in a range of ±90 billion between the highest (159 Billion) and the lowest (69 Billion) of the three price tags offered by three valuation firms. This implies, as I wrote earlier, that these valuation companies are looking at completely different aspects of a brand in order to make their assessment. Otherwise, the results would most likely be in a ±10% range.
Given the previous point, it is interesting to note that the list of most valuable brands do not often overlap. Brands like Disney and Mercedes do not make it in the top 100 most valuable brands for Millward Brown, but they belong to competitors’ lists; Brand Finance does not believe that Visa and L’Oreal make the cut of the Top 100, and Interbrand dismisses Walmart from their list of 100 most valuable brands. Ultimately, their perceptions of brand reality do not necessarily overlap.
Finally, when we look at each ranking from a time series standpoint, the year-over-year changes are sometimes extreme. Before looking at a related example, I would like to highlight that, not only do brand valuation companies disagree with each other, but often they disagree with their previous snapshot of the world. According to Brand Finance, Porsche was worth $54 billion in 2009, jumping 48% in 2010,to reach $8 billion. This growth continued, reaching its top value of $11.2 billion in 2013 before collapsing to below $4 billion, where it is stands now. All of this change occurred when the enterprise value of Porsche’s brand owner did not change significantly in the same time frame, nor was any major scandal or disaster linked to the brand.
Additionally, there are two other findings we can derive from the research, each of which occurs as a result of comparing the brand valuations with fair value valuations. Essentially, we can measure them against actual in-market transactions (e.g. Compaq). While differences in valuations are cross-industry, these differences become more distinct with the increasing complexity of the business, assets and brand architecture, as supported by the following table:
Second, the more the comparisons the larger the errors:
The bottom line is that these types of valuations and ranking are interesting and have big merits, although they need to be used by understanding what they mean – and what they are not suppose to mean – and not only as absolute references.