Brand value: What is a brand worth?

Apple has topped Forbes’ 2019 The World’s Most Valuable Brands list, with a brand value of $205.5 billion, followed by Google ($167.7 billion) and Microsoft ($125.5 billion). Amazon secured fourth. In rankings from UK brand valuation company Brand Finance, Amazon snatches the top spot.

The top brands in the world, ranked by their brand value, are named annually in global rankings. But every year there are inconsistencies and controversy. If a brand takes first place in one publication, why should it be ranked differently in another?

These inconsistencies reflect the difficulty of defining brand strength and value, and how to measure it.

The perplexity seems to arise from two different, yet intrinsically linked, concepts: brand value and brand equity. While brand equity refers to the importance of the brand to the consumer, brand value refers to its financial worth.

Martin Roll, chief executive officer of strategic consultancy Martin Roll Company and distinguished fellow at INSEAD Business School, says: “There are two parts to measuring brand strength. The first is brand equity—the combined strength of your brand in terms of consumer perception and the ability to drive premiums and loyalty.

“The second is the more financial angle, putting a brand’s value into dollar terms.”

Clearly, there is a multitude of different ways to measure your brand, and not all of them revolve around the financials, but even if worth is hard to define and calculate, companies accept that it’s something they need to build.

"With the advent of social media and technology, customers are connected to the brand—more than just the products." - Adraea Brown, Harley-Davidson

For companies looking to build their brand the International Organization for Standardization (ISO) may be one place to start. In June, ISO, a worldwide federation of national standards bodies, released ISO 20671, Brand evaluation–Principles and fundamentals. The ISO aims to standardise the technical requirements and evaluation methods involved in brand valuation.

In the US, intangibles such as the ‘homegrown’ brand do not show up on the balance sheet. Since a brand is such a major part of a company, does the absence of intangibles on the balance sheet mean companies are being undervalued? Larry Medin, founder and CEO of brand valuation company Brandometry, believes so.

“Back in 1975, intangibles or goodwill only represented 17% of the market capitalisation of the S&P 500,” he recalls.

“As the economy changed and technology changed, intangibles began to play a bigger role. By 2014, 84% of the capitalisation of a S&P 500 company was considered to be intangible.”

Brandometry’s new valuation approach takes intangible assets into account and potentially has the power to escalate the importance of marketing at companies. The EQM Brand Value Index, which was launched by Brandometry and index creator EQM Indexes, identifies strong brands that are undervalued in the market, to help investors spot opportunities.

Earlier this year, ride-sharing company Lyft went public with a market capitalisation of $24 billion. Its customers travel in vehicles Lyft doesn’t own. Airbnb, the holiday accommodation listing platform, was valued at $31 billion in 2017. It doesn’t own a single hotel room.

“Brands that work hard to maintain their reputation and product credibility are rewarded with consumers willing to pay a premium. These brands have a tendency to hold up better in economic downturns,” Medin says.

In March, Brand Finance released Global 500 2019, identifying Ferrari as the strongest, but not the most valuable, global brand.

According to David Haigh, chief executive officer of Brand Finance, the carmaker takes the top spot (with a score of 94.8 out of 100) because it restricts its volume output to maintain its strength on each product sale, limiting its short-term generation of value in order to maintain it in the long term.

“Since its inception, Ferrari has remained synonymous with style and performance, enabling the brand to successfully extend into other sectors—from merchandise, such as hats and sunglasses, to theme parks and the Maranello Village, a Ferrari-themed hotel—without losing its appeal as a luxury brand,” says Haigh.

He adds that along with the level of revenues, brand strength is a crucial driver of brand value. Brand Finance determines the relative strength of brands through a balanced scorecard of metrics evaluating marketing investment, stakeholder equity, and business performance.

“As Ferrari’s brand strength flourished this year, its brand value also improved, racing ahead 27% to $8.3 billion,” says Haigh. “As the world’s foremost luxury carmaker, Ferrari has an unparalleled level of brand recognition, upholding excellence for design and innovation.”

Consistency is key

For Harley-Davidson, brand value is all about consistency, says Adraea Brown, senior trademark counsel at the motorcycle manufacturer. The brand is certainly doing something right: it has been valued at more than $5 billion.

“With the advent of social media and technology, customers are connected to the brand—more than just the products,” says Brown.

She adds: “It’s a fine line between keeping those who are already connected with your brand and getting new customers who may feel your brand is alienating them.”

"A great reputation is a very hard thing to obtain, but a very easy thing to lose." - Marcela Bolland González, Uhthoff, Gomez Vega & Uhthoff

Marcela Bolland González, partner at Uhthoff, Gomez Vega & Uhthoff in Mexico, says the same can be said for the legal industry.

“Companies, including law firms, need to reach out using modern resources such as social media to convey your message more directly. Your messages will reach millions of potential consumers, so you have to make sure you’re putting the right message out.”

Through social media brands can connect with younger generations, including the two generations that are more likely to have a more flexible sense of brand loyalty: Millennials and Generation Zs.

According to US technology and media company Morning Consult, Gen-Zers and Millennials are more likely to try out new products than older generations, with 50% ready to try out different products, even if they know there’s one they like.

Compare this to Baby Boomers, of whom only 25% try different products, and Gen X, of whom 67% stick to the product they like.

Bolland believes that consumers are becoming more demanding in the services they require, such as wanting ‘green’ and ‘healthy’ goods from socially responsible companies.

“Employees used to be brand ambassadors, because of the time they served at the company. Now, the generation switches job more easily, so they aren’t permanent ambassadors,” she says, adding that the same thing is happening with consumers in terms of switching brands.

Preparing for the worst

“A great reputation is a very hard thing to obtain, but a very easy thing to lose,” Bolland warns. A variety of factors impact how consumers perceive brands, including their handling of crises and infringers. Deal with these situations in the wrong way, and your brand value can be damaged, sometimes irreparably, she says.

Bolland notes the importance of having a plan in place to respond to negative publicity to ensure that there is a timely official response.

“An event may be unfortunate, but lack of a timely response is worse,” she says.

In the case of a disaster, Bolland advises companies to be candid. “Accept it has happened, make sure it won’t happen again, and publicise the actions you’re taking to resolve the issue,” she adds.

Haigh cites the example of Akio Toyoda, chief executive officer of carmaker Toyota who, he says, has “survived the very public reputational disaster in 2010 as a result of faulty accelerator pedals”.

“Toyoda was slammed for his handling of the safety scandal and cited as a poor brand guardian but has now, nine years on, been ranked as the world’s second-best CEO with a Brand Guardianship Index score of 71.6 out of 100,” he says.

The grandson of Toyota’s founder has reclaimed favour among his key stakeholders through admission of his mistakes in public hearings and through adopting a crisis communications strategy, adds Haigh.

A strong brand can make all the difference in these situations, says Roll. “Having a reputational framework around your product means that it can withstand a crisis.”

It’s not only a crisis that threaten a brand; it’s also the failure to innovate in terms of how you position it. If a brand fails to come up with new ideas, it can lose its standing in the market, or worse—become extinct.

While not currently undertaking a rebrand, Harley-Davidson is clearly devising new strategies to appeal to younger generations, including preparation for its new electric motorcycle, LiveWire.

“We are more than many people think when they think of us, but it is tough when you get boxed in,” she says. “Admittedly, our core customers are not Millennials, but we have been creating bikes that appeal to a younger crowd for a long time and have quite diverse consumers.”

Kid gloves

The way brand owners deal with infringers can also impact brand strength. Across the world, Harley-Davidson loyalists form riding clubs and organise meetings with like-minded enthusiasts. Sometimes, these groups use the brand’s trademarks on their own merchandise. To combat this, the Harley-Davidson trademark team takes an educational approach, attempting to explain why this shouldn’t be happening.

Every now and then however, the brand encounters an infringer which feels it can sell products alongside Harley-Davidson, or has invested a lot of money into its infringing product and wants to continue to sell.

“We try not to be litigious, and we always take steps before to try and reach an understanding, but as a brand owner, sometimes it’s what we have to do. We have to be the stewards of this brand,” says Brown.

Over the past year, the motorcycle manufacturer has attracted the ire of US President Donald Trump. In June 2018, Harley-Davidson said it would move some production out of the US to avoid retaliatory tariffs from the EU.

Trump criticised the move, threatening the motorcycle manufacturer with higher taxes, and seemed to back Harley-Davidson owners who planned to boycott the brand.

The brand has refused to comment on the matter.

According to Morning Consult, 65% of the sample of 2,202 adults polled have stopped buying from a brand they were once loyal to, with 8% doing so because of a disagreement over a brand’s political position.

Matthew Bassiur, vice president, head of global IP enforcement at Alibaba, says: “Alibaba is consistently ranked one of the most valuable brands in the world, but our brand value comes, in part, from our ability to help merchants across our marketplaces build and enhance their own value, as well as protect their brands.”

He believes there is a “clear nexus” between a brand’s value and its IP. As an increasing number of companies take to the internet to sell their goods globally, it’s important that they collaborate with e-commerce companies to protect their IP rights.

Dealing with infringement is a task that Alibaba knows well: in January 2017, it formed the Alibaba Anti-Counterfeiting Alliance (AACA). Two years later the alliance has grown to 132 brand owners, including Mars and Honda.

“We believe the most effective weapon in the fight against counterfeiting is meaningful collaboration and honest dialogue,” Bassiur explains.

At Alibaba, there are three pillars to its IP protection programme: a robust notice-and-takedown process; proactive monitoring and removal; and the targeting of the offline sources of counterfeit goods.

Alibaba’s notice-and-takedown portal has resulted in 96% of all takedown requests being handled within the first 24 hours during business days. In 2018, through the use of real-time scanning and cutting-edge technologies, Alibaba removed 96% of suspect listings before a single sale was made.

“The online environment is merely reflective of the offline reality,” says Bassiur, who adds that in 2018, Alibaba referred 1,634 IP-related leads to law enforcement authorities, which contributed to the arrest of 1,953 criminal suspects, and the closure of 1,542 facilities.

Much like any relationship, loyalty and love from customers can quickly turn to ire if, thanks to a perceived heavy-handed legal action, they feel maligned. Ensuring brand value is maintained
by tackling infringements while also keeping customers happy is now a line that every brand
must walk.