The Value of a Brand

Being a brand geek, I was naturally drawn to the headline of a LinkedIn post by David Edelman, a McKinsey partner in the firm’s Digital Marketing Strategy practice. The title of the article was “What’s Your Brand Worth?”  and I found it intriguing because it is something every marketing executive (as well as CEOs, CFOs and others) wants to know. I found Edelman’s answers to the question a little disappointing.

First the article stated: “We know that strong brands with good reputations have 31% better total return to shareholders than the MSCI World average.” (The MSCI is an index of about 1,600 world or global stocks used as a benchmark. Turns out it is really not “world” because it only counts markets in developed countries and excludes emerging markets.) The article does not explain what the measure of “good reputations” is. I am not arguing that companies with strong reputations wouldn’t and shouldn’t beat indexes containing large groups of companies, but if the 31% better total return to shareholders is an average, it could be 10% for one company and 50% for another. And return to shareholders can be influenced by a number of factors including operational efficiency, low debt, general market trends, etc. So this was not very helpful in telling me what an individual brand is worth.

The other evidence given that strong brands have value was the recent bidding war for Steinway, the famous maker of pianos. Edelman said the sale price of the company was bid up because of its strong brand. Sure, something is only worth what someone is willing to pay for it. But because a suitor is willing to bid 20% more than anyone else, does that mean the brand is worth 20% more? Not sure about that. Maybe it is just an over-eager investor. The other problem with waiting until a company sells is that it is hard to separate what part of goodwill is the brand versus what is other intangibles such as distribution channels. So it is not a simple accounting calculation of subtracting tangible assets from the sale price to derive the value of the brand.

While Edelman’s article looked at the value of a brand at a macro level,
I think it is interesting to look at it from a micro level. One aspect of brand value is how much more a customer is willing to pay for your product or service than similar products or services from your competitors. This indicates they perceive greater value in your product or service, which could be attributed to the brand. Another measure is how often customers buy your product or service compared to similar products or services from competitors when your prices are about equal. Does your brand tip the scale in favor of repeat purchases?

There are many ideas for trying to measure the value of a brand. All seem to have limitations that defy nailing an exact number for the value of a brand.  Companies with strong brands know what they have (even if they can’t fully measure it) and protect that competitive advantage at all costs.

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