Brand valuation - why the big discrepancy in the amounts different rankings report?

Everyone is familiar with the annual brand valuation rankings that various organisations produce. Probably the most well-known is the one done by InterBrand. On IAM, and also on our sister publication World Trademark Review, we have tended to concentrate on the survey produced by Brand Finance each year. Millward Brown is another company that publishes tables in this area.

What is noticeable is that the valuations each comes to are very different, as are the orders in which brands appear. If you have ever wondered why, you might be interested in a very pugnacious press release Brand Finance has just put out. You could not accuse it of being a disinterested overview, but it does provide some food for thought. Here it is …

How can Google be valued at $48.3bn by Brand Finance but at $111.5bn by Millward Brown? Why is it that Brand Finance values Coca-Cola at $27bn while Interbrand values it at $72bn? Similar differences are found with many other brands and it is no wonder that such conflicting information on brand value is puzzling for the public.

The primary reasons for these wide differences in brand value are:

1. Asset definition: Brand Finance defines ‘brand’ in its league valuations as ‘Trademarks and associated Intellectual Property’. By contrast Millward Brown and Interbrand do not clearly define what they mean by ‘brand’. However in the case of Google and Apple they appear to be including a much wider bundle of IP in their definition of brand. This understandably leads to higher values.

2. Income recognition: Brand Finance reviews the financial statements of the subject companies in forensic detail and includes only income specifically earned by the subject brand. In the case of Coca Cola only 50% of its total corporate turnover is represented by the Coca Cola brand itself. The rest comes from other brands such as Fanta, Sprite and Desani which Brand Finance excludes from its calculations. This inevitably leads to a lower value.

3. Different valuation methods: Brand Finance uses a valuation technique known as ‘Royalty Relief’ which is by far the most widely recognised approach to ‘brand’ valuation amongst auditors, accountants, lawyers, courts, banks and tax authorities. It considers what companies would pay in the real commercial world for use of the brand. Such corporate royalty charges are applied to turnover to produce a stream of notional ‘brand earnings’ which are discounted back to a net present value. Interbrand and Millward Brown subjectively split company earnings which usually results in much higher brand values.

4. Different valuation dates: Brand Finance valuations usually have an effective date of 1st January each year. Interbrand and Millward Brown valuations come out at different times of the year and key assumptions may have changed. This can lead to brand values being much higher or lower depending on how market conditions have changed.

Conclusion

Brand valuations are no different from the valuation of buildings, equipment, pension assets and liabilities, shares, bonds, patents, art, wine and many other assets. If you ask two expert valuers for an asset valuation opinion in any asset class you will inevitably get different answers. The key thing is knowing how the opinions were determined and whether the valuers provided their opinions independently and at arm’s length.

The Interbrand and Millward Brown published brand valuations raise questions as to the transparency of calculations and whether consultancies that are subsidiaries of marketing companies can remain professionally independent. There are 5 recognised threats to independence:

(a) Self-interest; having an interest in the outcome of the valuation.

(b) Self-review; forming a valuation opinion on an asset created by the valuation company.

(c) Advocacy; moving from providing a genuine arm’s length opinion to a biased opinion to promote the client’s interests.

(d) Familiarity; becoming too familiar with the management of the subject branded business.

(e) Intimidation; letting commercial or other threats affect the result of the brand valuation.

These threats led accountancy bodies and regulators to outlaw audit firms from providing consulting and valuation services to their audit clients. In our view the same restriction should apply to the valuation of brands by companies whose primary role is building the subject brands.

Interbrand and Millward Brown are 100% subsidiaries of marketing services behemoths which make millions of dollars building the very brands their subsidiaries then value. Indeed Interbrand’s own strapline is ‘Creating and Managing Brands’.

There are many in the brand valuation business who consider it impossible for a consultancy to provide genuinely independent brand valuation opinions on brands which they, or their parent company, built in the first place. To highlight this we have launched the Campaign for Independent Brand Valuation.

You can get a bit more info on the campaign mentioned in the last line here, but it looks like we are going to haveto wait for a little longer to see the full details. Obviously BrandFinance has an agenda here, but I do think it is fair enough to questionwhether potential links between those being valued and those doing the valuinghave an effect – even if subliminal – on the worth being assigned to brands.There are a lot of people out there who are very cynical about valuingintangibles, and they are often right to be so, but valuation is also a vitalunderpinning of any business transaction which involves them. As a result,transparency in how figures are arrived at is paramount, as is ensuring trustin the process. Let’s see if we get any response to Brand Finance’s salvo fromInterBrand and Millward Brown.

Fonte: http://www.iam-media.com/Blog/Detail.aspx?g=2fa842dc-d2a7-4866-bc51-17be79433eef