(This article first appeared in the Financial Mail’s Redzone on 23 September 2015)
Brand development’s biggest challenge – brand valuation.
The Coca-Cola brand accounted for 54% of the company’s stock market value in 2007, according to Jan Lindermann, a former Global MD of Interbrand. I’m assuming the figure is not significantly different today.
In case you glossed over that sentence, not realising its full significance: the Coca-Cola brand, that 120-year-old intangible presence which exists only in people’s perceptions, generates more shareholder value than all of Coca-Cola’s other assets combined.
According to Lindermann, brands account for 30 to 40% of shareholder value – on average. The companies which invest in their brands perform better on the stock market than the companies which don’t – as you can see in the graph alongside.
These are compelling findings. As Lindemann explains, a dramatic shift took place in the understanding of the creation of shareholder value from 1980 onwards. Brands were revealed as most companies’ single most valuable asset.
I assume most CEOs find that last sentence compelling. So why is it, when I meet with a potential client, that I am not a hot knife cutting through butter? Why do I have to start by explaining what the word brand means? Why does the phrase corporate reputation get more heads nodding?
I suspect part of the reason is the nature of brand valuation. If brand valuation was a well-developed and concise science, it would help. CEOs and CFOs would have useful figures to work with. They wouldn’t be making do with concepts like ‘intangible but invaluable.’
And they wouldn’t, perhaps, relegate management of their brand to the part-time person in the part-time marketing department. Their brand development would be on the agenda at every board meeting – and hard questions would be asked. How is it doing? Why isn’t it doing better?
Performance. Results. This is how you treat the single most important asset of your company.
Over the past few decades, brand valuation has tried to become rigorous. For instance, you can now undertake a “structured evaluation of the brand’s market, stability, leadership position, growth trend, support, geographic footprint and legal protectability’ so that you can ‘derive a specific Brand Discount Rate that reflects the risk profile of the brand’s expected future earnings”? (Jan Lindermann’s words, not mine, as you can probably tell.)
But can brand valuation be a number-crunching exercise?
At the heart of all brands are ideas – well, there should be ideas – and those ideas will either resonate with people or they won’t. The more rigorous brand valuation tries to become, the more intangible it seems to remain. Intangible. That word again.
Or am I wrong? I hope I am.