Why we need to ditch brand valuation

The ex-chairman of Quaker Oats, John Stuart, once said: "If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trademarks, and I would fare better than you." Brand value was once everything.

You only need to look at M&A activity, which exceeded $3trn in North America and Europe last year, to understand why some view brand valuation as important. Amazon’s purchase of Whole Foods Market for a staggering $14 billion is just one example.

And yet boardrooms have become increasingly sceptical about how to use brand valuation. That’s because its limitations are increasingly noticeable.

For starters, brand valuations tend to vary dramatically. If we take the icon that is Coca-Cola: according to Interbrand, it’s worth $73.1 billion. Yet, according to Forbes’ calculations, the brand is worth $56.4 billion. And it gets worse: according to Brandirectory, it’s $34.2 billion. Who’s right?

And with brand valuation comes overvaluation: according to Markables, the average valuation is as likely to overstate a brand’s value by more than 500% as it is to get within 20% of the actual price paid.

Above all, outside M&A, you can’t take it to the bank. While marketers expect brand valuation to help unlock marketing spend, the reality is that it rarely does, since there’s no direct relationship between increasing marketing investment and increasing brand value.

It’s time for us to realise that brand valuation has, well, lost its value. Its original job—to put brand as an asset on the map—has been done. I get it: people—and especially business leaders—love league tables and charts. But this isn’t fantasy football. And yesterday’s question has been answered.

It’s time to change the way we use brand value. We need to measure brand in a way that identifies specific uplifts to business performance that no other asset can achieve. So how can we do this? And how can we drive real value for your business?

I think we would all accept that a stronger brand will sell more than a weaker brand. The hard question is: how much more—and how much more can I take to the bank?

First, you need to measure the equity of your brand to understand its impact on your customers’ purchase decision-making. This will quantify how much extra a buyer is willing to pay—or how often they are willing to buy—because of your brand.

Second, once you figure that out, you can monetise the role of brand for your business. And third, you then need to be able to identify how to improve your brand equity, so that you can manage and predict future commercial uplifts.

Understanding how your brand makes a consumer feel emotionally—and what this means to your day-to-day business—is the most important valuation you’ll ever need.

Nick Cooper is global executive director of insights and analytics at Landor.